(Corrects JFE production in 9th paragraph: 25.8 mln metric tons, instead of 58.2 mln metric tons)

NEW YORK - Steelmakers painted a gloomy picture for the short-term prospects of the industry on Tuesday as global prices have fallen and industrial demand is not recovering from the recession as quickly as expected.

The negative outlook from Japan to North America sent steelmakers' shares tumbling.

U.S. Steel Corp complained about slower order rates and AK Steel Holding Corp said it is cutting production capacity to match weak demand from big steel buyers like the automobile and construction industries.

Prices have just collapsed and a lot of people have not recognized that yet, said analyst Charles Bradford of Affiliated Research Group.

Over the past year, steel prices had slowly risen, but in the last couple of months they have slipped back as demand has stalled and raw material costs have risen. Dahlman Rose & Co analyst Tony Rizzuto said the price of U.S. hot-rolled coil steel dropped 3.8 percent in just the last five days.

Too much capacity came back on line too soon, said Bradford, noting U.S. capacity use rates had risen from about 45 percent last year to an average in the 70 percent range now.

AK Steel, which had operated at somewhere between 85 percent and 90 percent of capacity in the second quarter, said on Tuesday it will cut that to 80-85 percent.

Chief Executive Officer James Wainscott said the company's two blast furnaces, in Middletown, Ohio, and Ashland, Kentucky, will be paced. We'll match the order intake rate and will probably not produce carbon slabs at our Butler works (near Pittsburgh).

The gloom over the health of the steel industry came as Japan's JFE Holdings Inc <5411.T>, the world's fifth-largest steelmaker, which produced 25.8 million metric tons last year, returned to a profit. U.S. Steel posted a narrower second-quarter loss and AK Steel posted a profit that beat Wall Street expectations.

U.S. Steel, which shipped less than 15 million metric tons in 2009, has reported six consecutive quarterly losses. It said in April there were signs of economic recovery and it was increasing production. But on Tuesday it gave a gloomier outlook.

Operating results are expected to be below the second quarter, largely due to a decrease in shipping and production volumes for our flat-rolled segment, reflecting slower order rates, said Chairman and Chief Executive Officer John Surma, speaking about the third quarter.

He said, however, that carbon flat-rolled inventory levels at North American service center customers remain below historical averages and end-user demand appears stable. Similar market conditions prevail for our European operations.

Surma said U.S. Steel expects to report an overall operating profit for the third quarter as the U.S. and European economies continue to work their way through a gradual and uneven recovery process.

Earlier, JFE reported earnings for its fiscal first quarter were sharply down from on the previous quarter, hit by a delay in pushing through price increases, and the steelmaker gave only a cautious full-year outlook below consensus.

What matters is their guidance for the third quarter, and that is down significantly, said analyst Michelle Applebaum, of Steel Market Intelligence.

She said Wall Street expectations for the steel industry appear to be too high and analysts have not reacted to steel prices dropping in May.

U.S. Steel said its second-quarter net loss shrank to $25 million, or 17 cents per share, compared with a loss of $392 million, or $2.92 per share in the year-ago quarter.

Excluding a currency remeasurement of intercompany loans, earnings per share were 45 cents, falling short of the 63 cents per share that analysts had on average expected, according to Thomson Reuters I/B/E/S.

AK Steel, a smaller company that produced just under 4 million metric tons of steel and stainless steel last year, beat estimates to report a net second-quarter profit of $26.7 million after a loss in the 2009 quarter.

JFE, which also announced it will spend about $1 billion for a 14.9 percent stake in India's JSW Steel Ltd , said April-June recurring profit -- before tax and one-time items -- was 51.4 billion yen ($591 million). That was a turnaround from a 67.3 billion yen loss a year before, but about 30 percent below the previous quarter's profit.

JFE predicted a profit of 220 billion yen for the full year to March 2011, well below a consensus of 310.5 billion yen in a poll of 18 analysts by Thomson Reuters I/B/E/S.

U.S. Steel's stock fell 6.77 percent to $45.58 in afternoon trading on the New York Stock Exchange and AK was 6.1 percent lower at $14.27. JFE stock fell 3.14 percent at the close in Tokyo.

(Additional reporting by Matt Daily in New York and Yuko Inoue in Tokyo, editing by Dave Zimmerman and Gerald E. McCormick)

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