UPDATE 3

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Considers building its own rolling mill in U.S.

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Sees U.S. market as attractive thanks to IRA

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Expects Q3 stainless steel deliveries to drop 5-15%

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European market environment to remain weak

(Adds CFO comments in paragraphs 3-6, updates shares)

By Jagoda Darlak

Aug 3 (Reuters) - Finnish stainless steel maker Outokumpu is looking to expand in the United States and could build a hot rolling mill there, it said on Thursday, after its second-quarter profit more than halved due to weakness in its key European market.

The group, which produces stainless steel from recycled stainless scrap, noted U.S. legislation had incentivised investment in the country. The U.S. Inflation Reduction Act (IRA) offers generous tax breaks to boost manufacturing and cut carbon emissions.

But Outokumpu's Chief Financial Officer Pia Aaltonen-Forsell said the IRA's main benefit for the company would be "indirect" and come from the economic boost created by it, not from any direct subsidies or tax breaks.

"It makes this (U.S.) market growing and dynamic and therefore highly attractive," she told Reuters.

Currently, Outokumpu is the second largest stainless steel producer in the U.S., with a cold rolling mill in Calvert, Alabama, but its growth is limited by the capacity of a partner it uses for its hot rolling production, Aaltonen-Forsell said.

"If we want to benefit from the growing North American market, the best way of grasping it is to invest in North America," she said.

Shares fell 7% initially but recovered later in the day, after the company reported a 61.3% fall in adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) to 190 million euros ($207.84 million) in the April-June period, missing an analyst forecast.

"The market environment in Europe weakened faster than expected and negatively impacted business area Europe's profitability already at the end of the quarter," Chief Executive Heikki Malinen said in a statement.

Core earnings in the Americas region, where the Finnish group generated nearly a third of group sales last year, increased 62% quarter-on-quarter, compared to a 57% drop in Europe.

"We want to capture a fair share of the increasing demand for the locally produced sustainable stainless steel," the CEO said, adding the group was ready for a final investment decision to be made when needed.

Outokumpu, whose stainless steel products are used in tanks, facades and consumer goods such as washing machines, said second-quarter profitability was impacted by "significantly lower" steel prices in both Europe and its Americas region.

Its stainless steel deliveries declined by 10% in the quarter to 502,000 metric tons, and are expected to fall a further 5-15% in the third. Third-quarter adjusted EBITDA is also expected to be lower than in the second. ($1 = 0.9142 euros) (Reporting by Jagoda Darlak in Gdansk and Anne Kauranen in Helsinki; Editing by Christina Fincher, Kirsten Donovan)