* 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 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
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
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)