Gloomy economy seen weighing on stainless steel demand

KENILWORTH, England, June 19 (Reuters) - Stainless steel demand is likely to remain sluggish for the rest of the year as a gloomy economic outlook dampens demand, an industry expert and producers said on Thursday.

The stainless steel industry started destocking in mid-2007, when producers cut production after costs of key raw materials peaked.

Producers and experts at the British Stainless Steel Association's conference said the destocking cycle has already come to an end, but now economic and inflationary pressures are weighing.

"We expect very little recovery in 2008 in demand," said Peter Kaufmanns, a director at the International Stainless Steel Forum, a leading industry body.

"We see consumer and business confidence steeply down and there are serious worries about inflation," he added.

Stainless steel production has dropped by 8.3 percent and 16.8 percent in the last two quarters of 2007 respectively, compared to a 15 percent and 3 percent growth rate in the first two quarters, Kaufmanns said.

This year, he expected production to rise by 5 percent, adding that inflationary pressures would hit consumers across the globe, even China.

"Chinese consumers can't spend any more on stainless steel consuming goods," he said.

Some producers sounded more optimistic.

Andrea Gatti, executive vice president, group sales and marketing at Outokumpu (OUT1V.HE) said consumer goods-related segments were struggling while some others were in better shape. "We don't foresee completely frozen activity like we faced 12 months ago," he said. "I expect that big buyers or distributors will wait. In September, we will see a pick-up."

"Not a dramatic boom but a pick-up," he said. Finnish Outokumpu is among the top five stainless steel producers.

COMPETITIVE

But for the longer-term, experts agreed that there was further potential for stainless steel use.

"Stainless steel has unchanged good potential for further growth...It's one of the most competitive materials," Kaufmanns said.

He expected 2009 to be better than this year.

"We see 2008 as the bottom of the current economic cycle. In 2009, we can experience a little bit better environment for the stainless market."

India's larger stainless steel producer saw strong growth in demand for the coming 3 years, thanks to the construction boom.

"Indian consumption growth is seen at around 10-12 percent until 2010," said Nirmal Mathur, director at Jindal Stainless (JIST.BO), adding that India was the world's No. 5 consumer. (Reporting by Humeyra Pamuk; editing by Peter Blackburn)