Concern that there may be further closures of European steel plants continues to build, as the slump that followed the bounce back of 2010 shows no sign of waning.

The European steel market staged a strong recovery in 2010, after demand plummeted the year before (demand for sheet steel fell 30 per cent), as initiatives by European government, such as car scrappage schemes helped buoy demand.

“2011 was relatively flat and there was initially the expectation that there would be some growth in 2012, but it has been clear since the middle of last year that the sovereign debt crisis was going to be a big problem and the situation has worsened recently,” says Mr John Kovacs, Principal Consultant for steel at consultancy CRU, who expects demand for sheet steel to fall 2-3 per cent year-on-year this year, and demand for long products (dependent on Europe’s troubled construction sector) to fall some nine per cent.

Ratings agency Fitch has warned that further steel production capacity closures are likely across Europe over the next 12 months, as demand is set to remain muted into 2013, production overcapacity continues to linger, cost pressures remain high, and firms have struggled to keep up prices.

“We think it’s inevitable that there will be further closures,” says Mr Roelof Steenekamp, Director at Fitch Ratings.

“In 2012 everyone expected prices to stick but they haven’t: steel demand is likely to be in the doldrums for the rest of the year, and we’ve seen margin erosions across companies.”

With raw material costs rising, he argues, the only real alternative left to firms is to cut higher cost capacity, and for the industry to move towards a utilisation capacity of around 90 per cent, from the current levels of around 80 per cent.

Others have warned that sliding prices in southern Europe will put pressure on northern European prices, bringing them down further, despite the best efforts of firms to hold prices steady.

ArcelorMittal had been targeting €540 a tonne for hot rolled coil, but levels were closer to €480 to €530 a ton, said Credit Suisse in a recent investor note. “This substantial price slide, which began in April, could have weakened steelmakers’ position in their ongoing contract negotiation with the car industry,” the analysts said.

This week ArcelorMittal, in an interview with the Financial Times , declined to reiterate previously given reassurances that it was not planning further closures, following the permanent shutdown of two blast furnaces in Belgium.

There are fears that others could face permanent shutdown such as two blast furnaces in Florange in France, which have been idle since October last year.

Last month, Tata Steel said it may delay the relighting of a blast furnace at Port Talbot in Wales, following a rebuild project, if market demand toward the end of the year did not justify immediate production, though it reiterated the future of the project was not in doubt.

And Germany’s ThyssenKrupp has said a blast furnace at Duisburg Hamborn that it closed temporarily in January for modernisation would stay shut for 2012.

Unions say they recognise the pressures on the industry, but are calling for further clarity from firms and more joint efforts to tackle the issues and cost pressures facing the industry, with their workforce.

“Our priority is to try and maintain jobs and a sustainable company,” says Mr Rob Johnson, an Executive Director at global manufacturing union Industriall. “If you only address labour costs, you won’t do anything to save the industry in the long term.”

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