EU steel market "in slow motion", China risk seen

By Bate Felix and Alexandra Schwarz

BRUSSELS/VIENNA (Reuters) - The European Union steel market will remain subdued even after a likely return to growth in the region's economy during the third quarter, steel industry body Eurofer said on Thursday.

Eurofer said in a report that the recovery forecast for the coming quarters would be slow and surrounded by uncertainty as prospects for the EU's steel-using sectors -- such as automotive and construction -- remained dim.

Speaking separately in Vienna, Eurofer's president and Voestalpine Chief Executive Wolfgang Eder also struck a downbeat note on the sector, with fears China could damage the delicate stabilisation in the market by ramping up its exports as its domestic demand slows.

Eurofer's report said weak activity in Europe's steel sector, hit by the worst economic crisis since World War Two, had brought a slump in demand as consumption fell 45 percent year-on-year in the first half of 2009 and by almost 32 percent in the third quarter.

"While the economy probably reached a turning point, the EU steel market will remain stuck in slow motion for the time being," Eurofer Director General Gordon Moffat said in a report on the market outlook for 2009 to 2011.

Eurofer said a downward trend in orders at mills was bottoming out as some customers returned to fill gaps in their stocks while an inventory build-up after heavy destocking in 2009 would lead to a "technical" recovery in steel demand.

But it warned against premature optimism. "Global crude steel production increasing in anticipation of a recovery in steel demand which yet has to materialise remains a major risk for the EU supply-demand balance," Moffat said.

The report showed that, while year-on-year output growth should turn positive in the second quarter of 2010, it could take until 2011 for a stronger rebound.