* Q2 core profit $13 million
* Sees signs of bottoming in economic activity
* Does not expect Timminco to default
* Shares down 3 percent
(Adds detail, analyst comment, shares)
By Catherine Hornby
AMSTERDAM, Aug 12 (Reuters) - Dutch-listed Advanced Metallurgical Group posted a drop in second-quarter core profit due to weak demand for its speciality metals in sluggish economies, knocking its shares on Wednesday.
"Despite some signs of a bottoming of economic activity, it is still early to declare that the markets are turning around," Chief Executive Heinz Schimmelbusch said in a statement. Earnings before interest, tax, depreciation and amortisation (EBITDA) were $13 million in the second quarter, down from $63.4 million in the same period the previous year and compared with a $7 million forecast in a Reuters survey of four analysts.
Shares in AMG were down 3 percent at 6.9 euros by 1305 GMT, after earlier slipping almost 10 percent, while Amsterdam's midcap index rose 0.5 percent.
Petercam analyst Luuk van Beek said the results at AMG's majority-owned subsidiary Timminco, which makes silicon for the production of solar cells, were clearly disappointing, but were offset by a more robust performance at other divisions.
Timminco, which saw its net loss deepen more than threefold in the second quarter, has suffered from a global slowdown in the solar and industrial silicon markets, while lower sales volumes have also led to higher production costs.
AMG said in a statement that contract renegotiations with customers and declines in solar grade silicon shipments in the slowing economic environment could continue to adversely affect Timminco's liquidity and compliance with debt covenants.
However, Schimmelbusch said during a conference call he did not expect Timminco to default on debt obligations and AMG expected its Canadian subsidiary to operate as a going concern, within its covenants.
AMG's Engineering Systems division, which makes melting furnace systems, saw core profit slip just 4 percent in the second quarter but its order backlog declined and AMG said it expected a challenging second half for the unit.
Its Advanced Materials division was hit by weak demand most notably in the steel, superalloy and titanium markets. But it saw some signs of stabilisation in recent weeks in a number of speciality metals, such as ferrovanadium.
"As declines in demand and pricing have been significant during the first half of 2009, it will take some time until markets return to pre-financial crisis levels," the company said in its outlook statement.
The group said it would focus on limiting capital investment and reducing costs to preserve free cash flow.
AMG's specialty metals and vacuum furnace systems make components for the aerospace, energy, electronics, chemicals, construction, transport and consumer products industries. (Reporting by Catherine Hornby; editing by Hans Peters and Simon Jessop)