* Steel division hit by European energy weakness
* FY EBIT, EBITDA now seen below last year instead of flat
* Shares up 0.3 percent, below basic resources index (Adds CEO comments on energy sector, prices; updates shares)
By Georgina Prodhan
VIENNA, Feb 11 (Reuters) - Austrian steelmaker Voestalpine warned that current year profits would be lower than last year’s due to falling prices for pipeline and power station projects as a result of weak energy demand in Europe.
Voestalpine said on Tuesday it now expected core and operating profit somewhat beneath last year’s levels. The company had forecast earnings around the same level as last year‘s. Its third-quarter earnings and sales fell short of analysts’ expectations.
The company, which had escaped the worst of a steel industry slump by focusing on specialised and high-technology products, said its basic steel division in particular was hard hit by dramatically falling prices for energy projects.
“I can sum up our problems up in one word and this word is ‘Energiewende’,” Chief Executive Wolfgang Eder said, referring to Germany’s renewable energy revolution that began in the 1980s and gained momentum after the 2011 Fukushima nuclear disaster.
Europe’s energy sector has been thrown into turmoil by large increases in subsidies for renewable energy in Germany, the continent’s largest economy, and cheap carbon emissions permits that have made coal competitive again.
Wholesale electricity prices have fallen as a result, leading to the closure or mothballing of uneconomic gas-fired power plants and the cancellation of planned projects by utilities forced to make large writedowns.
“Competition for the few still remaining projects resulted in dramatically falling prices in the course of the year,” Voestalpine said in a statement.
Eder said, however, he expected European steel prices to rise slightly this year despite chronic overcapacity as construction, which accounts for about half of all consumption, picks up.
His cautious optimism as Europe emerges from two years of economic weakness echoed that of other steelmakers including ArcelorMittal, the world’s largest.
Voestalpine said the December quarter seemed to mark a trough for sales and earnings and it believed a turnaround was occurring thanks to Gazprom’s massive South Stream pipeline project and general industrial recovery.
Europe accounts for three quarters of Voestalpine’s sales but the company is expanding aggressively in north America and Asia to reduce its dependence on its home continent. Energy is one of the growth industries it is targeting.
For this fiscal year to end-March, it said it would miss its operating profit target of about 850 million euros ($1.16 billion) by some 50-60 million euros because of the problems in the energy sector. Sales would also be slightly lower.
Analysts polled by Reuters had on average expected 848 million euros this fiscal year.
In the third quarter, sales fell 2 percent to 2.66 billion euros. Earnings before interest, tax, depreciation and amortisation (EBITDA) and EBIT both slipped 1 percent to 320 million and 172 million euros respectively.
All were below the lowest estimates in a Reuters poll of analysts.
The steel division accounted for one third of Voestalpine’s total sales in the third quarter but just 17 percent of EBIT.
Voestalpine shares fell in early trading but by 1049 GMT traded 0.3 percent higher at 33.02 euros, underperforming a 1.3 percent-higher European basic resources index. ($1 = 0.7327 euros)
Editing by Michael Shields and Jane Merriman