Tata Steel warned that it expected “muted” demand in its core markets this year, as it posted its first quarterly loss for two years.

The group, which is India’s largest and Europe’s second-largest steel producer, said on Thursday that it made a net loss of 6.87bn rupees ($139m) in the three months to December 31 as it was weighed down by higher prices for raw materials and the economic uncertainty in Europe. During the same period in 2010, the company made a net profit of 9.48bn rupees.

Karl-Ulrich Köhler, head of the company’s European operations, said: “Tata Steel was one of the first steel companies in Europe last year to start adjusting its output and configuration to the slowdown in the recovery” and added that “we are accelerating cash conservation in expectation of muted but stable demand in our core markets in 2012”.

The company is not alone in suffering from tepid European demand. On Tuesday, ArcelorMittal, the world’s biggest steelmaker, which derives about 40 per cent of its output from plants in Europe, said that it made a net loss of $1bn over the same period.

Tata is even more exposed to the ramifications of Europe’s debt crisis, since its European operations – formerly the Anglo-Dutch company Corus – provide 65 per cent of its total revenues.

These revenues came in at 329.6bn rupees, up 15 per cent on the corresponding period a year earlier. However, Tata was also forced to spend 20 per cent more on raw materials than a year previously, meaning that margins were squeezed.

Steel is one of the world’s most widely traded commodities, with demand highly dependent on broad fluctuations in market conditions.

For the past two years, both demand and earnings have been far removed from the levels the industry enjoyed in the boom years of 2006 and 2007, as the global economic slowdown has reduced activity in sectors ranging from construction to carmaking, both substantial users of steel.

Peter Fish, from the steel consultancy Meps International, said: “Steel prices fell steadily last year but the three months to December were the low point, so most companies will have found it difficult.”

He added that prices bottomed out at the end of the year and said that he was expecting further rises this year but warned that until companies in sectors such as construction regained the confidence to invest, gains for the steel industry would be limited.

“Until the eurozone turns round, things aren’t likely to improve much,” he said.

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