* Q2 net loss 3.6 bln rupees vs forecast 2.6 bln profit
* European margins in low single digits, India sales rise
* Tata Steel shares close down 3.3 pct in Mumbai
MUMBAI, Nov 9 (Reuters) - India’s Tata Steel does not expect an improvement any time soon to weak market conditions that sent it to a surprise quarterly loss, the company said on Friday.
The $500-billion-a-year steel industry has slowed sharply this year as moderation in China’s economic growth has compounded weak demand in Europe. European operations account for nearly two thirds of Tata’s 28 million tonne capacity.
Squeezed margins in Europe sent Tata to a net loss of 3.64 billion rupees ($66.8 million) for the second quarter of its financial year, against a 6 billion rupee profit last year.
“European steel demand and prices have weakened since spring and this took its toll on our financial performance,” Tata Steel’s head of European operations Karl-Ulrich Koehler said, adding that he didn’t expect the situation to improve this year.
The average forecast in a Reuters poll of brokerages was for net profit of 2.6 billion rupees on net sales of 312.2 billion. Tata’s net sales rose 4 percent to 341.3 billion rupees.
ArcelorMittal, the world’s largest steelmaker, last week reported a quarterly loss. On Friday Japan’s Nippon Steel & Sumitomo Metal Corp said that profit in the second half of 2012/13 would fall by more than 50 percent from the previous year.
Sales at Tata’s Indian operations rose 11 percent to 90.3 billion rupees as demand remained steady from the consumer goods and construction sectors. Tata focuses on marketing branded products in India and generates better prices than its peers.
Tata Steel India reported net profit of 13.51 billion rupees, down from 14.95 billion a year ago. It expects to sell an additional 1 million tonnes in India this fiscal year.
The company raised capacity at its Indian plant to 9.7 million tonnes this year meet strong demand. It is also building another steel plant with capacity of 3 million tonnes at Odisha in eastern India. The long-delayed project is expected to be finished in 2014.
The company held net debt of $10.4 billion at September 30, up from $9.7 billion at June 30. Tata recently tied up plans for a further $6.5 billion of borrowing for the Odisha project.
Managing Director Hemant Nerurkar said that Tata had replied to a 60 billion rupee penalty notice from the state of Odisha for illegal mining and expects to resolve the issue.
Shares in Tata Steel, valued at $7.2 billion, were down 3.3 percent by the close. The stock is up 16 percent so far in 2012, lagging a nearly 22 percent rise in the benchmark index .