UPDATE 1-India's SAIL net up, but sees demand slowing

MUMBAI, Oct 21 (Reuters) - State-run Steel Authority of India (SAIL) (SAIL.BO: Quote, Profile, Research) reported an 18 percent rise in September quarter profit on Tuesday, but said steel demand and prices were falling as economic growth slowed.

SAIL's crude steel production rose by 5 percent to 3.5 million tonnes in the quarter from a year earlier, and volumes of value-added products such as heavy structurals, pipes and plates rose 33 percent to 1.14 million tonnes, boosting margins.

"There will be an impact in steel demand. It is already visible to some extent," Chairman S. K. Roongta said at a media conference, speaking of a slowdown in activity. "Q3 prices of steel products will definitely be lower than in Q2".

SAIL's net profit rose 18 percent in its fiscal second quarter to 20.10 billion rupees ($409 million), while net sales rose by a third to 122.39 billion rupees. With annual crude steel production of 14 million tonnes, SAIL is India's largest domestic producer, but it trails Tata Steel (TISC.BO: Quote, Profile, Research) on a global basis.

SAIL mines its own iron ore, but imports nearly three-fourths of its coal requirement, which is converted into coking coal.

"Higher price of coal is a matter of concern because it is bought internationally, and when 2008/09 contracts were concluded the prices more than trebled," Roongta said.

Indian steel producers have said they will cut production by 30 percent if the government does not scrap a 15 percent export tax and introduce a 15 percent import duty. India in April had allowed free imports and imposed the export tax to help tame rising prices and bring inflation under control.

"We are not having a rethink on our expansion plans but obviously steel prices are lower. We expect some advantage for us in terms of lower cost of equipment also," he said.

Shares in SAIL ended 2.5 percent lower at 105.15 rupees in a Mumbai market that gained 4.5 percent. ($1=49.1 rupees) (Reporting by Prashant Mehra; Editing by John Mair)