Mittal Steel reported lower second-quarter results and said it expects a big fall in third-quarter profit, as customers work through excess stocks.

But the world's biggest steelmaker, and former owner of Irish Steel, says output cuts have steadied prices, and it looks for demand to pick up, starting with the fourth quarter.

The Rotterdam-based firm, 88 per cent owned by the Mittal family, said yesterday that operating profit fell 18 per cent in its second quarter as higher costs for raw materials such as iron ore compounded previously announced production cuts.

Mittal's shares in Amsterdam fell 10 per cent to €21.9 in early trading but recovered later to €23.46, down 3.1 per cent. Shares in Arcelor, the world's second-largest steelmaker, were unchanged at €18.40.

Mittal, which became industry leader after completing a $4.5 billion (€3.6 billion) acquisition of US International Steel Group in April, said operating income fell to $1.39 billion in the three months to June 30th from $1.69 billion in the same period of last year and $1.72 billion in the first quarter.

Net income was $1.09 billion, down from $1.15 billion in the first quarter and $1.28 billion in the same period last year.

Mittal's shipments were up 17 per cent on the quarter at 12.2 million tons but were down 10 per cent excluding International Steel Group, while the cost of goods sold per ton was up 14 per cent, due to higher raw material and energy costs.

Production and shipments will be slightly lower in the third quarter and prices significantly lower, Mittal said. It said operating income per ton of steel was likely to drop $50 to $60 in the third quarter from $114 in the second, as production falls further in what is seasonally the steel industry's weakest quarter of the year. Chief financial officer Aditya Mittal said he was upbeat about prospects from the fourth quarter onwards.