BL reported that the European steel market staged a strong recovery in 2010, after demand plummeted the year before (demand for sheet steel fell 30%), as initiatives by European government, such as car scrappage schemes helped buoy demand.
Mr John Kovacs principal consultant for steel at consultancy CRU, who expects demand for sheet steel to fall 2% YoY to 3% YoY in 2012 and demand for long products (dependent on Europe's troubled construction sector) to fall some 9%, said that "2011 was relatively flat and there was initially the expectation that there would be some growth in 2012, but it has been clear since the middle of last year that the sovereign debt crisis was going to be a big problem and the situation has worsened recently."
Ratings agency Fitch has warned that further steel production capacity closures are likely across Europe over the next 12 months, as demand is set to remain muted into 2013, production overcapacity continues to linger, cost pressures remain high and firms have struggled to keep up prices.
Mr Roelof Steenekamp director at Fitch Ratings said that "We think it's inevitable that there will be further closures. In 2012 everyone expected prices to stick but they haven't, steel demand is likely to be in the doldrums for the rest of the year and we've seen margin erosions across companies."
With raw material costs rising, he argues, the only real alternative left to firms is to cut higher cost capacity, and for the industry to move towards a utilization capacity of around 90%, from the current levels of around 80%.
Others have warned that sliding prices in southern Europe will put pressure on northern European prices, bringing them down further, despite the best efforts of firms to hold prices steady.
Credit Suisse in a recent investor note that ArcelorMittal had been targeting EUR 540 a tonne for hot rolled coil, but levels were closer to EUR 480 to EUR 530 a tonne. This substantial price slide, which began in April 2012, could have weakened steelmakers' position in their ongoing contract negotiation with the car industry.
Source - Hindu Business Line
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