UPDATE 1-Furnace restarts signal US steel industry rebound

* ArcelorMittal to restart two U.S. furnaces

* Union says U.S. Steel preparing to restart furnace

* U.S. steel industry capacity at about 54 percent (Updates with furnace restart plans, comments, stocks up)

NEW YORK, Aug 20 - Steelmaker ArcelorMittal <ISPA.AS> <MT.N> said on Thursday it will restart two idled blast furnaces in the United States, while a union official said a U.S. Steel Corp <X.N> furnace is also being prepared to reopen as the industry slowly rebounds from recession.

The news of steel production returning in America's industrial heartland came as statistics showed world steel production in July rose to its highest this year, even though U.S. steelmakers are still operating at barely half capacity.

Europe-based ArcelorMittal, the world's largest steelmaker, said it will resume production at its No. 6 blast furnace at Indiana Harbor, East Chicago, Indiana, in early October.

It also said that in response to improving market demand, it will restart the C-5 blast furnace, steel shop, hot mill and other operations in Cleveland in mid-September.

U.S. Steel declined to say whether it was restarting a furnace at its Great Lakes Works in Ecorse/River Rouge, Michigan, but a local official of the United Steelworkers Union (USW) said the furnace was being readied to fire-up again.

"I haven't been officially notified, but hundreds of my members have been called back to prepare for it to restart," said Marc Barragan, president of USW Local 1299.

Since the economic downturn last September, steel demand has plummeted and most producers have cut production as prices dropped. The American Iron and Steel Institute said current U.S. plant capacity is at 53.9 percent, below the 90.4 percent of a year ago.

World Steel Association data issued on Thursday said global crude steel production dropped more than 10 percent year-on-year in July but was at its highest level of 2009.

Production totaled 103.9 million tonnes, down 11.1 percent from July 2008 but up from 99.7 million tonnes in June this year. China accounted for 48 percent of the global production in the month, the figures showed.

U.S. steel production of 5 million tonnes in July was the highest monthly figure this year, but it was 41.6 percent lower than July 2008, the World Steel Association said.

ArcelorMittal spokesman Adam Warrington said the company was bringing back capacity "in line with improving demand, largely due to the technical recovery occurring as inventory destocking nears completion.

"However, we do not expect demand to return to the levels seen in 2008 for some time yet and remain cautiously optimistic for a slow and progressive recovery," he said in an e-mail to Reuters.

Analyst Charles Bradford of Affiliated Research Group said it appeared that inventory liquidation was mostly over, "but there is no sign of real demand increasing yet," despite lower auto industry steel stockpiles.

And Michelle Applebaum, of Steel Market Intelligence, noted that non-residential construction activity has not picked up enough for a meaningful boost to the steel industry.

But she still saw positives in the production figures.

"While steel production typically declines around 2 percent in August versus July ... we believe that the end to global destocking as well as stronger steel demand and prices in China will buck the normal seasonal trend leading to higher output in August."

U.S. Steel stock closed up 50 cents, or 1.16 percent at $43.71 on the New York Stock Exchange. ArcelorMittal rose 15 cents to $35.38, AK Steel <AKS.N> ended the day 2.7 percent ahead at $20.47 and Nucor <NUE.N> rose 1.15 percent to $46.61.