European steel recovery remains fragile, says German industry body

DUESSELDORF, Germany Tue Feb 11, 2014 6:21am EST

DUESSELDORF, Germany Feb 11 (Reuters) - An expected recovery in the European steel sector could be derailed by fierce competition and rising raw material and energy prices, the German steel association warned on Tuesday.

Austerity measures aimed at cutting budget deficits hit economic growth across the European Union in the past two years and were particularly painful for the steel industry because of the accompanying slowdown in demand for cars, appliances and new buildings.

Though steel producers' lobby group Eurofer last month said that improving demand from carmakers and the construction sector should bring a return to growth this year, the president of Germany's steel association said the European sector is still in "crisis mode".

"We currently see slight recovery, albeit in a still difficult market environment ... This is a recovery from a very low level," Hans Juergen Kerkhoff said at an industry conference.

European steelmakers have struggled to cope with a slump in prices and 200 million tonnes of global overcapacity amid the economic downturn, just as rising energy and environmental costs weigh on their profits.

Kerkhoff said that steel demand this year will remain far below pre-crisis levels, with southern countries such as Italy and Spain continuing to lag behind the north.

Germany accounts for about a quarter of Europe's crude steel production. The German association, which represents steelmakers such as ThyssenKrupp and Salzgitter, expects the country to increase its steel output by 2 percent this year to 43 million tonnes.

In January, German crude steel output grew by 2.2 percent from a year earlier - its fifth straight increase - with orders rising to a two-year high. (Reporting by Maria Sheahan and Tom Kaeckenhoff; Editing by David Goodman)

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