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European Steel Lobby Sees Shutdowns Inevitable as Values Tumble

European steel-plant shutdowns are inevitable as overcapacity pushes the price of the metal lower, shrinking earnings, regional lobby group Eurofer said.

Valuations have fallen to an almost eight-year low, based on the Bloomberg Europe Steel Index of shares, as the region’s economic crisis adds to pressure from competition for sales.

“There is some capacity idled but we have not seen any major cutbacks or shutdowns,” President Wolfgang Eder said. “This is something that in the longer run is inevitable in Europe. The longer there is this enormous gap, the longer the European steel industry will suffer on the price side.”

Europe has capacity to produce about 210 million metric tons of steel a year, while demand in a “normal market” is 150 million to 160 million tons, Eder, also chief executive officer of Austria’s Voestalpine AG, said in an interview in London.

Steelmakers’ share prices have tumbled 79 percent in the past four years, the worst performing of 37 industry groups tracked by Bloomberg. ArcelorMittal, the biggest producer, has shuttered or idled plants in Belgium, Spain, France and Luxembourg in the past nine months as demand waned.

The company’s average price for steel at its Flat Carbon Europe unit, its biggest business by sales, fell to $861 a ton in the first quarter from $928 a year earlier. The unit reported earnings before interest, tax, depreciation and amortization of $17 a ton in the quarter, down from $64 a year earlier.

Intense Competition

ArcelorMittal said last month the industry has “room to do better” on supply, while ThyssenKrupp AG, Germany’s largest producer, said profits were curbed by “intense competition” in the steel industry and discipline on prices was “weak.”

Growth in world steel demand this year is forecast to slow to 3.6 percent from 5.6 percent, while Europe may be see a 1.2 percent contraction, according to the World Steel Association.

“Major capacities need to be closed, and the sooner the better,” Eder said. “On the other hand one has to understand that to close down a steel plant has enormous social and political implications on the workforce and employment.”

Politicians and labor unions oppose closings. ArcelorMittal plants in Belgium and France halted in December as the European Metalworkers’ Federation called strikes against job losses.

Workers in Liege, Belgium, barricaded six managers in their offices for 24 hours in October as the company planned to shut blast furnaces. French President Francois Hollande ordered an independent report on prospects for idled furnaces in Florange.

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