Tata Steel, the world's No.7 steelmaker, posted an unexpected quarterly loss, its first in more than two years, as higher raw material costs and weak demand in Europe hurt margins.

The company, which operates two-thirds of its global capacity of about 28 million tonnes in Europe, warned it did not expect a significant revival in demand in its core markets in 2012.

"The December quarter marked the height of the cyclical cost-price squeeze," said Karl-Ulrich Kohler, head of its European operations.

"We are accelerating cash conservation in expectation of muted but stable demand in our core markets in 2012," he said in a statement.

Global crude steel production hit a record high of 1.53 billion tonnes in 2011, but the pace of growth was sharply lower than the previous year as the sovereign debt crisis in Europe and slowing economic growth in top consumer China dented demand.

Global steel output rose 6.8 per cent in 2011, down from a 15 per cent growth in 2010, according to the World Steel Association.

Earlier this month, ArcelorMittal, the world's largest steelmaker, posted an unexpected quarterly net loss, while Korea's POSCO, the world No 3, reported a smaller-than-expected profit rise.

Tata Steel reported a net loss of Rs 6.87 billion for its fiscal third quarter ended December, compared with a net profit of Rs 9.49 billion a year earlier. Net sales rose 15 per cent to Rs 329.64 billion.

After minority interest and share of associates, it reported a net loss of Rs 6.03 billion. Analysts, on average, had expected a net profit of Rs 3.4 billion, according to a Reuters poll of 12 brokerages.

"There hasn't been a demand uptick that was expected, so prices have come down. At the same time, none of their production costs are lower, so margins are under pressure," said Ravindra Deshpande, sector analyst at Mumbai's Elara Securities.

"It doesn't look promising for the next couple of quarters," he said.

MARGINS SLUMP
Tata Steel said consolidated margins for the quarter slumped to 5.9 per cent from 11.6 per cent a year earlier. Its steel deliveries eased to 5.84 million tonnes from 5.9 million in the previous year.

Sales at its Indian operations, which account for a quarter of its global capacity, rose 16 per cent to Rs 244.5 billion.

It posted a 1.1 per cent drop in volume because of slowing economic activity and weak demand from the construction and automobile sectors.

"We expect steel demand to improve on expectations of the Reserve Bank of India relaxing monetary policy to aid growth and investment," Tata Steel managing director Hemant Nerurkar said.

The company is expected to complete a planned expansion of its Indian capacity to 9.7 million tonnes by March, from 6.7 million tonnes now. Tata Steel also operates units in Thailand and Singapore.

The company said it held total net debt of $9.5 billion at end-December, much of it from its $13 billion acquisition of Anglo-Dutch steelmaker Corus in 2007. Its debt stood at $9.2 billion at the end of September.

Shares in Tata Steel, valued at $8.9 billion, closed up 0.3 per cent in Mumbai ahead of the results. The stock has jumped about 36 per cent so far in 2012, compared with a nearly 15 percent rise in India's benchmark index.