ArcelorMittal , the world's top steelmaker, cautioned its markets would only recover slowly as it forecast higher shipments but lower selling prices in the early months of 2010, putting pressure on core profits.

The firm, which has about 8 percent of the global market and capacity some three times greater than nearest rival Nippon Steel <5401.T>, said on Wednesday it expected core profit or EBITDA (earnings before interest, tax, depreciation and amortization) of between $1.8 and $2.2 billion in the first quarter.

The figure compared with an average forecast in a Reuters poll of $2.6 billion, albeit with a wide range of estimates, and with a fourth quarter result of $2.1 billion.

Chief Executive Lakshmi Mittal said 2010 would continue to be challenging, although capital expenditure would rise by 43 percent to $4 billion this year.

We therefore start the year in a good position to benefit from the progressive, albeit slow, recovery that is under way, he said in a statement.

ArcelorMittal said its shipments were expected to be higher in the first quarter of this year than at the end of 2009, but it would face lower average selling prices and increased costs. Net debt was expected to increase over the period.

The mixed picture chimed in with results and comments from other major steel companies in recent weeks.

The $500 billion steel industry took a heavy beating in the 2008/2009 downturn, with demand from key construction and auto consumers sharply down and destocking magnifying the negative effect. Producers cut output by as much as a half.

Capacity utilization increased to 70 percent in the last three months of 2009. It was set to rise gradually to 75 percent in the first quarter.

ArcelorMittal is among the most exposed companies to spot steel prices, which should rise with expected restocking.

Its EBITDA of $2.1 billion in the final quarter of 2009 missed the average $2.23 billion forecast of a Reuters poll of 21 analysts. The company had given a range of $2.0 to $2.4 billion in October.

ArcelorMittal returned to net profit in the third quarter after three consecutive quarterly losses and was again profitable in the fourth.

CASH FLOW GOOD, GUIDANCE POOR

Hermann Reith, analyst at BHF Bank in Frankfurt said the company's cash flow was good and net debt better than expected, meaning it would easily meet its loan covenants. Planned capital expenditure was higher than expected.

What is disappointing is the guidance. With that start, it will be tough to meet market estimates for the full year. I expect them to be revised down, he said.

In the United States, AK Steel topped market expectations and forecast higher prices with improved demand, but larger rival U.S. Steel made a heavier fourth-quarter loss than expected and said it saw a similar first quarter.

Nippon Steel forecast a first annual net loss in seven years, but world number eight Tata Steel more than doubled quarterly profit at its Indian operations.

European steel body Eurofer said last week the sector in the region was recovering slowly on the back of an improving outlook for car and engineering companies, despite a continued slump in construction.

(Reporting by Philip Blenkinsop; Editing by Sharon Lindores, John Stonestreet)

Tata steel