ArcelorMittal (MT), the world's largest steelmaker, Wednesday said it remains cautious for demand in the second half of the year faced with a seasonal consumption dip in Europe and a slowdown in China, but added it believes recovery will continue, albeit at a slower pace.

The company also said it's assessing a spin-off of its stainless steel business to tackle an overcapacity problem in Europe and that it successfully renegotiated contracts with most of its automotive customers after changes to the iron ore contract system earlier this year.

"The recent crisis in Europe reminds us it's still possible," said chief financial officer Aditya Mittal, in response to a question of whether or not he forecasts a double dip recession. "But more likely we'll see a gradual recovery, maybe with a few dips," he added.

The Luxembourg-based steelmaker swung to a net profit of $1.7 billion in the three months to June 30 after a net loss of $792 million in the year-ago period.

Second quarter earnings before interest, taxes, depreciation and amortization, or Ebitda, of $3.0 billion was above $1.22 billion a year ago but the company forecast a lower third quarter Ebitda of between $2.1 billion and $2.5 billion.

"The (company's) outlook for the third quarter we feel will disappoint markets," Liberum Capital said.

In April, major iron ore miners started to change iron ore contracts with steel mills to a spot-based quarterly system from a decades old benchmark system, raising the costs for steel mills.

"The challenge for the second half of the year will be to pass on the full extent of cost increases to our customers," said Chief Executive Lakshmi Mittal.

ArcelorMittal said it has been able to renegotiate most of its contracts with automotive customers to semi-annual contracts from annual ones with an increase in price. Some contracts still need to be looked at but haven't expired yet.

The company said in Europe it has idled three blast furnaces mainly due to a seasonal slowdown in demand, when many manufacturers shut for the summer. Capacity utilization will dip to 70% in the third quarter from around 78% in the second, the company said.

It also said growth in China is slowing, but that it should be temporary.

"The Chinese government has demonstrated tremendous control over the economy, therefore we believe it forces a slowdown because it was growing too fast," Aditya Mittal said. "Therefore we expect a recovery sooner rather than later."

ArcelorMittal shares, listed on Euronext Netherlands, closed Tuesday at EUR24.72.

-By Devon Maylie; Dow Jones Newswires; (4420) 7842 9483; devon.maylie@dowjones.com
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