STEELMAKER Corus surprised investors yesterday by announcing plans to pay its first interim dividend for five years.

Corus said a modest payment was likely when it reports its half-year results in August, as growing demand for steel fuelled confidence in the company's recovery.

Analysts had not expected the group to announce a dividend until the end of the year, and the news sent shares more than five per cent higher.

The group, which employs thousands of workers on Teesside, told its annual meeting that it expected to outperform its last set of financial results.

A statement issued at the meeting said: "The operating performance for the company in the first half of 2005 is expected to be marginally better than the strong second half of last year."

However, Corus announced it planned to cut production, and warned of "tough times" ahead.

Steel consumption is forecast to increase by about four per cent this year, with China the main driver of growth.

But Corus said demand in its core markets of Europe and North America was relatively weak.

Higher imports into Europe and a weakening in the construction and automotive sectors has led to higher stock levels than anticipated, which has driven down prices.

"To align production with demand, Corus has reduced steelmaking output in the second quarter by 70,000 tonnes per month.

"This policy will be continued with the reduction increasing to 160,000 tonnes per month for the third quarter."

Corus returned to the black last year after benefiting from rising steel prices and restructuring.

Since its creation in 1999, it has made losses totalling more than £2bn and shed thousands of jobs.

Its beam mill on Teesside, part of Corus's Construction and Industrial business, employs 517 workers and a further 700 staff in engineering and support functions.

It also operates stand-alone company Teesside Cast Products (TCP), in Redcar, east Cleveland, which employs 1,700 workers.