THE world''s biggest steel company, ArcelorMittal, and competitors in Europe will probably curb steel production to support prices as they struggle to pass on higher raw material costs, just as a regional debt crisis and cuts in state spending cut demand.
''''You''ll see some blast-furnace stoppages,'''' said Gordon Moffat, the director-general of Eurofer, which represents steel makers in Europe. ''''It looks like they''re responding to a weakening of the market.''''
Slowing demand is damaging efforts to sustain output gains during the past year after the industry hauled itself out of its worst crisis in 60 years.
ArcelorMittal said this month it was ready to halt three blast furnaces should seasonal trends reduce demand next quarter. ThyssenKrupp, Germany''s top producer, also plans to scale back processing at some plants.
Even after ArcelorMittal increased production of flat carbon steel in Europe by 62 per cent last quarter, the Luxembourg-based company is operating below capacity after slashing global output by as much as 50 per cent during the economic slump.
Shutting plants may help buoy prices as demand from car makers slides. ''''Prices have come under pressure worldwide,'''' said Imran Akram, an analyst at Collins Stewart. ''''It is looking increasingly as if the industry will need to idle more capacity than has been announced.''''
Last month Chinese steel prices, which typically lead European rates, fell 6 per cent, to 4316 yuan ($US635) a tonne. It was the first drop since January.
Matthias Hellstern, an analyst at Moody''s Investors Service, said of the second half: ''''There is now a risk that steel production has increased more quickly than the recovery in real demand, which could lead to pricing pressure.''''
ArcelorMittal had previously indicated it would expand worldwide output to 80 per cent of capacity in the second quarter from 72 per cent in the previous three months. In February it said production would reach 85 per cent by the end of the year.
Europe''s steel industry, while suffering from declining demand in the ''''near term'''', would benefit in future years as governments and companies cut debt and a lower euro boosted exports, Goldman Sachs said last month.
Still, Bank of America Merrill Lynch has forecast that production by European steel mills will drop 15 per cent next quarter from the previous three months, compared with an average 7 per cent reduction in the third quarters between 2002 and 2007.
European producers face declining demand as governments end incentives to buy new cars, and the debt crisis centred on Greece stifles the chances of a housing-market recovery across the region.
Christian Georges, an analyst at Olivetree Securities in London, said: ''''We are looking at weak demand from autos in the second half, and at this point construction is likely to remain weak.''''
Steel makers are seeking to bolster prices in preparation for further gains in iron-ore costs in the third quarter after the raw material almost doubled in April.
The quarterly price for ore from Rio Tinto and BHP Billiton, the second- and third-largest producers, might climb about 23 per cent, to $US148 a tonne, from July 1, Macquarie Group analysts said.
ArcelorMittal''s chief executive, Lakshmi Mittal, said in March the company needed to raise fees after miners of iron ore ended a 40-year custom of fixing prices annually and switched to supply contracts that change every quarter.