UPDATE 2-Steelmaker Ilva to restart furnace in October
* Acciaio halt may hurt firms with 1.8 bln euros turnover
* Italian steel bosses worried about expropriation
* Italy's climate unfavourable to enterprises- Marcegaglia
By Silvia Antonioli and Agnieszka Flak
LONDON/MILAN, Sept 19 (Reuters) - Italy's Ilva, Europe's largest steel plant, is planning to restart a furnace to boost production from late October, unaffected by a court-ordered freeze on assets of its owner, the Riva family, industry sources said.
The southern Italian plant, at the centre of a lengthy environmental scandal, will restart a blast furnace with a capacity of about 2 million tonnes per year, which will allow it to increase annual production to around 7.5 million tonnes, two sources with knowledge of the situation said.
Unlike Ilva, sister company Riva Acciaio halted operations at plants in northern Italy last week and sent home 1,400 workers after its funds were frozen as part of a probe into alleged environmental crimes at Ilva.
Both Ilva and Riva Acciaio belong to the Riva family.
Earlier this year, tax police said they would seize assets worth 8.1 billion euros ($10.8 billion) from the Riva family, and a seizure order stemming from the proceedings was handed to Riva Acciaio last week, blocking its banking operations.
The halt at Riva Acciaio, which produces around 1.5 million tonnes of long steel products a year, is damaging steelmakers and their suppliers, whose combined annual turnover from the domestic market alone amounts to 1.8 billion euros ($2.4 billion), Italian business lobby Confindustria said.
"Ilva has not been affected by the latest seizure. It is currently running with two out of its five furnaces, and it will restart a third furnace in October," one of the sources said.
"The furnace had been halted for a reduction in demand and to consume stocks."
An Ilva spokesman declined to comment.
Two Ilva affiliates - Taranto Energia and Ilva Servizi Marittimi - which provide energy and shipping services to the steel operation, were included in last week's seizure, but this has had no immediate impact on Ilva's output, the sources said.
"They have blocked the bank account of Taranto Energia, which made it impossible (for Taranto) to pay wages, but Ilva has guaranteed the company's payments (including the wages), so there is no immediate impact," the second source said.
"Things are fine for now, but Ilva lives day by day at the moment. There are no guarantees for the long term."
In the course of a lengthy dispute between Riva and Italian magistrates, which has included arrests of some members of the family and the seizure of various assets, the government in June appointed a commissioner to run Ilva and oversee its cleanup.
Prime Minister Enrico Letta said on Monday the government might try to put Riva Acciaio under special administration as well, which has angered some Italian steel entrepreneurs.
"The possibility of appealing to a special commissioner, which de facto translates into an expropriation, is extremely worrying," said Antonio Marcegaglia, chief executive of steel fabricator Marcegaglia, Ilva's largest customer and also a client of Riva Acciaio.
"The lack of a clear political line highlights a general climate that is not favourable to the industry and to entrepreneurs," Marcegaglia, brother of former Confindustria boss Emma Marcegaglia, told Reuters.
Italian steel lobby Federacciai and metals association Assofermet warned that a domino effect might hurt Riva Acciaio's clients and its suppliers.
Caterpillar, an end-user of products made with Riva's steel, said the Riva situation has not had an impact on its production so far, but that, should there be a disruption, it was prepared to implement contingency plans.
Federacciai has asked for an urgent meeting with Letta and industry minister Flavio Zanonato to ask them to help restart the Riva Acciaio plants to avert serious damage to the Italian industry.
The asset freeze is driving many suppliers, already suffering from a difficult financial environment, into a critical situation because they are not being paid, Assofermet president Romano Pezzotti said.
Unions have also appealed to the government to help preserve jobs as Italy struggles with its longest postwar recession.
The government said this week it might consider changing the law to allow Riva to operate despite the seizure.
"The big worry for Italian steelmakers is that this attempt to expropriate companies or put them under special administration, like they did with Ilva, can constitute a precedent," Federacciai boss Antonio Gozzi, who is also the chief executive of steel group Duferco, told Reuters.
Confindustria said the production halt at Riva Acciaio could boost steel prices by up to 20 percent, but market analysts said the European long steel products market is oversupplied and the effect on prices might not be as pronounced as that estimate.
Among some steelmakers likely to benefit from the situation are Italy's Feralpi, Acciaierie Venete, ORI Martin and Luxemburg-based competitor ArcelorMittal, according to JP Morgan analyst Alessandro Abate.
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