Brazil's large flat-steel inventory levels are expected to reach more normal levels only by the middle of the second half of 2011, the chief financial officer of ArcelorMittal (MT), the world's largest steelmaker, said Wednesday.

"We experienced an inventory bubble in the second half of 2010," CFO Aditya Mittal told analysts in a conference call. "We expected that the levels of imports would decline and that we would therefore move faster in terms of eliminating this inventory bubble."

But Brazil's currency, the real, has appreciated against the dollar while both domestic shipments and imports were higher than expected in the first quarter, meaning steel inventory remains high.

He said it may take until the "middle of the second half when it would come to more normalized levels."

According to Brazilian Steel Distributors' Institute INDA, Brazil's flat-steel inventories started to rise again in March to the equivalent of 3.1 months' usage, reaching 1.19 million metric tons, after having dropped to 2.9 months' usage in February.

Stockpiles had fallen from the record level of 4.1 months' usage last October, after Brazilian steelmakers reduced product prices to compete with imports, but still hadn't returned to what INDA considers "normal" levels, equivalent to 2.5 months' usage, an institute spokeswoman said.

According to Barclays Capital, INDA expects inventories to have risen to the equivalent of 3.7 months' usage in April, the figures for which will be announced only late May. Stockpiles are on the rise again because consumers brought forward aggressive purchases in advance of mills' plans to hike prices in April, temporarily boosting inventories which may now take some five months to settle down to traditional levels again, the Barclays analysts said.

Brazilian mills are meanwhile reported to be facing resistance to their proposed price increases of up to 10%, due to the recent softening of global steel prices, even despite a halving of import levels from first-quarter 2010 levels.

There has been a quick and significant change in the inventories scenario in recent weeks, according to Barclays. "The de-stocking phase in the domestic steel industry was playing out in-line with expectations during the beginning of 2011. Nevertheless...the scenario has now changed and there is a significant inventory overhang in the domestic market. We are now back to an unfavorable inventory cycle."

-By Alex MacDonald and Diana Kinch, Dow Jones Newswires; 44-7776-200-924; alex.macdonald@dowjones.com

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