* CEO says demand still at "very low level"
* Says demand in July, August was better than feared
* Does not see Q3 profitability in current market conditions
* Too early to say if can turn profit in Q4
* Shares outperform, up 2.2 percent
(Adds quotes, background, share price)
By Johannes Hellstrom
SANDVIKEN, Sweden, Sept 3 (Reuters) - Swedish machinery and tool maker Sandvik's chief executive said overall demand remained very weak but had still developed better than feared over the past couple of months.
"Regarding demand in general across all business areas, I would say it is still flat at a very low level," Lars Pettersson told reporters and analysts at a capital market day on Thursday.
Lower demand for metalworking tools, mining equipment and specialty steels forced Sandvik to slash costs and lay off thousands of workers, as the economic downturn took its toll on the Swedish manufacturing sector.
Pettersson said the group had seen an increase in inquiries from customers in the mining sector, but few of these were being translated into new orders.
However, demand had still developed better than the group has feared a few months ago, Pettersson told Reuters.
"It didn't turn out quite as bad as I had feared, that much I can say. That doesn't mean things were good, but they were not quite as serious as we had planned for," he said.
Sandvik shares were up 2.2 percent at 70.4 crowns by 1147 GMT, outperforming a 1.4 percent gain in the Stockholm bourse's blue chip index.
Analysts expect Sandvik would not be able to return to profitability at current demand levels during the third quarter, and Pettersson said it was too soon to say if Sandvik would be able to make a profit in the final quarter of the year.
"I don't dare say we'll be there in Q4. That depends on how the business develops in terms of mix and other issues, as well as on how fast inventories can be scaled back," he said.
"Some time toward the end of this year or the beginning of next year we will begin ramping up production to a level that covers demand, and then results will be affected right away."
In July, Sandvik posted a pretax loss of 2.44 billion Swedish crowns ($339 million) for the second quarter and said it saw no recovery in demand as order bookings tumbled across all its key markets.
"Some time toward the end of this year or beginning of next year the figures must begin looking better," Pettersson said. (Reporting by Johannes Hellstrom; Writing by Niklas Pollard; Editing by Dan Lalor and Elaine Hardcastle)