* Steel prices near recent 4-year lows despite demand uptick
* EU sees 2nd highest steel output growth in world in 2014
* Market years away from eating into supply over-hang
By Maytaal Angel
LONDON, June 11 (Reuters) - EU steelmakers have restarted nearly half the blast furnaces that were idled in the financial crisis, according to a leading industry player, holding back recovery in a sector already hobbled by over-capacity and high energy costs.
Demand for EU steel, a sector that indirectly employs millions of Europeans and was decimated by the 2008 financial crisis, is expected to grow by 2 or 3 percent this year, after two straight years of decline.
Still, prices of the alloy are not far off their lowest level in four years ST-CRUEU-IDX, constrained primarily by a 30 percent price decline in raw materials such as iron ore .IO62-CNI=SI, but also by plentiful supplies in Europe.
"Of the fourteen blast furnaces that were idled since 2008, nearly half of those are back on stream. As long as this is the basic approach in the industry, it is impossible to see a structural improvement in prices," said Wolfgang Eder, CEO of Austrian steelmaker Voestalpine and former president of steel association Eurofer.
According to steel producers' association Worldsteel, output in Europe rose 6.2 percent in the year to April - the second highest growth rate in the world and surpassed only by the Middle East. By contrast, output in the North America, where steel prices ST-CRUNAM-IDX are at their highest since May 2012, grew by just 0.7 percent.
This year alone, ArcelorMittal, the world's biggest steel producer, restarted a blast furnace in Spain with annual capacity of 2.4 million tonnes and its furnace in France with annual capacity of 7 million tonnes.
Unfortunately, the restarts have come at a time when net steel exports from China, the world's largest producer, rose 41.5 percent in the year to May as the country's growth slowed, while its mills continued to churn out record levels of steel.
Also, over-capacity in Europe is at an estimated 30 million tonnes, so savvy buyers have opted to shop around for their steel, rebuffing price rises from mills which they well know are incurring lower raw material costs.
"It's not a doomsday scenario for steelmakers it's just that this will be a very gradual recovery. Pricing power is very modest - it reflects the fact that demand is getting better. Still, the best way to make money in this business is when there is no supply overhang, and we're nowhere near that point," said Macquarie steel analyst Jeff Largey.
Europe's steelmakers, including top players ArcelorMittal and Tata Steel, did manage to turn to profits from losses for European businesses in the first quarter, benefiting from the region's demand uptick, better export markets and cost cuts.
Overall, though, the improvement was from a low base and fairly modest as steelmakers in the region still face gas prices that are four times higher than those in the United States, electricity prices more than double those in the United States and the highest carbon taxes in the world.
With their competitive edge in global markets thus constrained, companies in the steel sector can little afford the supply overhangs that eat into their pricing power. Yet on an individual level they have opted to respond quickly to the demand uptick with more supply.
"The European steel market is still 20 percent off the peak in terms of demand, and I think the general mood amongst steelmakers is that it will take a very long time for that demand to come back again. The pre-crisis peak was exceptional," said Rod Beddows, president of Hatch Corporate Finance. (Editing by Mark Potter)