PARIS (Reuters) - The French government and steelmaker ArcelorMittal ISPA.AS are aiming to clinch a deal to save jobs and avoid a temporary nationalisation of the company's Florange steelworks, government sources said on Friday as a midnight deadline neared.
The talks came as the Italian cabinet was meeting to approve a rescue plan for ILVA, Europe's largest steel plant with 20,000 workers, which is threatened with closure after an alleged environmental disaster.
The European steel industry is struggling with overcapacity at a time of recession in the euro area and cheap competition in emerging markets.
ArcelorMittal says the Florange site's two furnaces are not viable but Socialist President Francois Hollande wants them kept open and has threatened a controversial state takeover for the site in northeastern France if no private buyer is found.
The two furnaces together employ 600 workers with the entire site providing work for 2,700. Sources close to the negotiations said talks could stretch beyond the deadline set for an accord by ArcelorMittal.
"It's probably set for Saturday," one of the sources said of a possible agreement. Neither ArcelorMittal nor the government has commented publicly on the chances of compromise. Hollande has said his main objective is to secure jobs.
"My aim is to find a long-term solution in terms of both jobs and activities for the Florange site," he told reporters on a trip outside Paris late on Thursday, declining to give details of how a compromise could emerge.
A deal this weekend could bring concessions from both parties, including promises from ArcelorMittal to offer new jobs to all workers affected by a shutdown of the furnaces and large new investments in France, Les Echos business daily reported.
The compromise could save face for Hollande's government, which is struggling to stem a glut of industrial layoffs and has faced criticism from business leaders this week over its threat to nationalise Florange.
Alternatively the state could carry out plans to acquire the whole site with a private co-investor and seek to revamp the idled furnaces using European Union credits to produce environmentally friendly steel, Les Echos added.
Industry Minister Arnaud Montebourg, who shocked foreign investors this week by saying Arcelor's Indian CEO Lakshmi Mittal was no longer welcome in France, has said an unnamed industrialist was ready to inject 400 million euros into the site.
Montebourg huddled in a cafe with a group of orange-vested metal workers protesting near the finance ministry early on Friday, telling them that nationalisation was still an option.
"He told us that he was not in control of the Elysee's (Hollande's office) agenda but he thinks that a deal will not come today and is more likely tomorrow," Edouard Martin, head of the CFDT trade union's Florange chapter, told Reuters.
Recalling Hollande's pledge to save jobs at Florange when he met workers there while campaigning for president, Martin added: "Make sure he doesn't forget the merguez (sausage) he ate with us at Florange on February 24 - he'll understand."
Hollande is wary of the stigma that even a temporary nationalisation would carry abroad and prefers an intermediate solution that would save jobs and draw new investment to Florange, Le Monde daily reported, citing government sources.
Officials have defended a temporary nationalisation of the site, saying it is a special case because ArcelorMittal has broken promises to keep the furnaces running.
But ArcelorMittal denies breaching commitments. Sources close to the group say Arcelor planned in 2003 - before its 2006 takeover by Mittal - to wind down inland blast furnaces in Europe, including the two in Florange, by 2010.
They argue that overcapacity in Europe's steel market, with demand 28 percent below peak 2007 levels, has made Florange's furnaces uneconomical and that a buyer would have to absorb deep losses to take them on, even with the rest of the site.
In Rome, the Italian cabinet was reviewing a decree on Friday to secure the future of the troubled ILVA steel plant after discussions between Prime Minister Mario Monti and the management on Thursday.
ILVA is a major employer in a jobs black spot in southern Italy and is threatened with closure over concerns that toxic factory emissions increased deaths from cancer and respiratory diseases in the surrounding area of Taranto.
Reporting by Nick Vinocur, Emmanuel Jarry, Julien Ponthus in Paris and Phil Blenkinsop in Brussels; Writing by Nick Vinocur; Editing by Mark John and Paul Taylor