Mumbai: Tata Steel Ltd, the world’s No. 8 steel maker by output, fell to a surprise net loss in the June quarter on a slowdown in demand in Europe and the US and warned of a slow global recovery.

The Indian company, whose shares ended 5% lower, said it was aiming to rationalize operations in Europe and sharpen its focus on cost management.

Analysts said a rebound in earnings would be difficult in the absence of a revival in demand.

Slowdown in demand: Tata Steel chairman Ratan Tata. Santosh Hirlekar / PTI

Shares in Tata Steel, with a market value of $6.9 billion (around Rs33,810 crore), ended down 5.1% at Rs436.40, in the last half hour of trade after the results. The Mumbai market overall closed up 0.1%.

Tata Steel said its consolidated April-June net loss after minority interest and share of profits of associates was Rs2,209 crore ($452 million), compared with a forecast of Rs66 crore from a Reuters poll of six analysts and a profit of Rs3,901 crore a year earlier.

Consolidated net sales fell to Rs23,181 crore from Rs43,375 crore, against a forecast of Rs23,000 crore.

Global steel production slumped by one-fifth in the first seven months of this year as demand from the building and automotive sectors shrank, but is now gradually picking up as steel mills revive idled capacity.

The world’s top two steelmakers, ArcelorMittal and Nippon Steel Corp., last month posted quarterly losses and warned the industry’s return to growth from the economic slump would be gradual.

Chairman Ratan Tata said the loss at TataSteel, which bought Corus, Europe’s second largest steel maker, in 2007, reflected a continued squeeze in demand in the US and Europe.

“There are now weak signs of recovery in terms of iron ore prices but it is still difficult to say if this is sustained recovery or just a plateau," Tata told the annual shareholders’ meeting.

“We aim to make Tata Steel the lowest-cost producer and rationalizing operations in Europe and optimizing their effectiveness will be a major challenge," he said.

The World Steel Association in April forecast steel demand would tumble 15% this year, its steepest fall since World War II. Tata Steel, which last month raised $500 million through a share sale on the London Stock Exchange, has said it has strong liquidity and no material repayment obligations or refinancing for the next 12 months.

The funds are being partly used to finance its capacity expansion in India, where it is betting on annual demand growth of about 25%.

“The global recovery is expected to be slow and the company will continue to focus on operating performance and liquidity management," B. Muthuraman, managing director of Tata Steel, said in a statement.

Tata Steel stock has more than doubled so far in 2009 after tumbling 77% last year. The broader index is up nearly 64% so far this year.