* Sandvik says to consider IPO of Materials Tech unit
* Unit has been seen as long-standing spin-off candidate (Adds more context, analyst, updates shares)
By Johannes Hellstrom and Esha Vaish
STOCKHOLM, May 6 (Reuters) - Swedish engineering group Sandvik is considering listing its Materials Technology (SMT) business after announcing plans on Monday to separate it from the rest of the group.
SMT, Sandvik's specialty steel business, has been seen as a spin-off candidate for many years, and has lagged far behind the group's main machining solutions and mining gear units in terms of both sales and profitability.
Sandvik had previously said it expected to announce its plans for SMT later this year.
The SMT business, which makes seamless tubes and different strip steel products, represents the original core of 157-year old Sandvik.
The unit still has some 3,000 staff in the Swedish town of Sandviken, where the group was founded and where Sandvik used to have its group headquarters.
"The decision to initiate an internal separation of Sandvik Materials Technology is based on the board's belief that each part will develop more favourably by itself, increasing opportunities for profitable growth and improving long-term shareholder value," Sandvik Chairman Johan Molin said in a statement on Monday.
"The board of directors has also decided to explore the possibility of a separate listing at the Nasdaq Stockholm Exchange, should that strengthen Sandvik Materials Technology's position and future development," Sandvik added.
Sandvik's shares were down 2.3 percent at 166.45 crowns by 1335 GMT, recovering somewhat from an earlier drop of 2.8 percent made before the news was announced.
Pareto Securities analyst Anders Roslund told Reuters that business could have an enterprise value of 12.2 billion Swedish crowns ($1.3 billion).
The figure equates to roughly 10 Swedish crowns per share, he said, adding that in an "optimistic scenario" the unit could fetch a 10-15 percent higher valuation.
The separation and preparation for a possible listing is expected to take at least a year.
The news from Sandvik comes at a time when companies are increasingly focusing on streamlining their businesses, including looking at separations and spin-offs to remain focused on what they view as core operations.
Similar moves in Sweden in recent years have included mining gear maker Epiroc's spin-off from industrial group Atlas Copco and auto tech firm Veoneer's separation from airbag maker Autoliv
Materials Technology accounts for around 15 percent of Sandvik's sales and 7 percent of the group's operating profit.
Sandvik had sales of around 100 billion Swedish crowns in 2018. ($1 = 9.5937 Swedish crowns) (Reporting by Johannes Hellstrom and Esha Vaish; Editing by Jan Harvey and Keith Weir)