India's Tata Steel forecast improving global demand in spite of European woes, as the world's No.7 steelmaker reported a bigger-than-expected drop in quarterly profit after being squeezed by weak prices, lower volume and higher input costs.

The company, whose European operations account for two-thirds of its global capacity of about 28 million tons, reported consolidated net profit for its fiscal fourth quarter plunged 90 percent.

In the same period last year, a one-off gain had boosted earnings.

"We expect global steel consumption to improve but production may dip again,"finance chief Koushik Chatterjee told reporters. "Steel demand in emerging countries like India and China is growing, but in Europe it is expected to drop."

Tata Steel's volume in Europe is not expected to improve significantly before the end of 2012, said Karl-Ulrich Kohler, head of the company's European operations, given the market situation and ongoing work at a blast furnace in Britain.

Global crude output grew at a slower pace in 2011, and demand this year has been squeezed by the euro zone debt crisis and tight credit conditions in China, the world's biggest steel consumer and producer.

Last week, ArcelorMittal, the world's largest steelmaker, said it saw strong demand from the U.S. and the demand environment had improved since November.

Earlier, world No. 3 POSCO and Japanese group Nippon Steel forecast an improvement in markets in the latter half of 2012, but warned of high raw material costs.

Shares in Tata Steel, valued at US$7.3 billion, closed 1.5 percent lower ahead of the earnings announcement. The stock is up about 19 percent in 2012, outperforming a 4.5 percent rise in the benchmark index.

Consolidated net profit after minority interest and share of associates fell 90 percent to 4.33 billion rupees (US$79.4 million) for the three months to March.

A Reuters poll forecast net profit of 10.3 billion rupees. The year-ago profit included a one-time gain of 22.8 billion rupees on the sale of a plant in England. Consolidated net sales rose 1.2 percent to 339 billion rupees. Consolidated operating margins fell to 10.1 percent from 14.1 percent a year earlier, while steel deliveries slid to 6.22 million tons from 6.65 million.

Tata Steel had net debt of US$9.4 billion at end-March — much of this resulting from its US$13 billion acquisition of Anglo-Dutch steelmaker Corus in 2007 — a slight increase from US$9.2 billion in December.

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