EUROFER, the European Steel Association, expects European real steel demand to increase by 6.4 percent year on year this year but to drop to a much slower growth rate of 2.3 percent next year following a substantial slowdown in demand during the second half of 2011.
"Our overall annual forecast is on track to beat our previous guidance of six percent," Gordon Moffat, Eurofer's director general, told Dow Jones Newswires in an interview. "But the second half slowdown is stronger than expected and this will be followed by growth next year which is much slower than this year," he added.
Mr. Moffat said that the average production capacity utilization rate among European flat steel producers is hovering at around 80 percent, while utilization rates among European long steel producers is hovering below 60 percent, below the optimal long-term run rate of 65 percent. "There will be a need for some kind of restructuring in the long products sector", he said.
Moffat said the 2012 demand growth rate of 2.3 percent is Eurofer's base case scenario but it does not take into the account the possibility of a Greek debt default, which he personally considers plausible. In his opinion, the 2.3 percent real steel demand growth rate is tenable, even amid a Greek debt default, if politicians manage to create a structured and orderly default process that does not put into question the future of the euro.
Compared with the 2008-09 financial crisis, steelmakers are better prepared to weather a slump in steel demand, Mr. Moffat said. Whereas large steelmakers were burdened with high debt and large inventories in the previous downturn, steel companies have done a good job in lowering their debt to manageable levels and inventory levels are more moderate, he said. Giving examples, he said that Germany's largest steelmaker, ThyssenKrupp, issued shares this summer to pay down debt, while ArcelorMittal, the world's largest steelmaker, restructured its balance sheet by extending the maturity date of its debt profile and shifting its liabilities from loans to debt.
Nevertheless, ailing demand is already taking its toll on the European steel industry. ArcelorMittal is restructuring its operations with a view to temporarily shutting down its most expensive blast furnaces.
Mr. Moffat said he expects steelmakers may shut down their plants for a longer maintenance period this upcoming Christmas holiday period in order to cope with weaker demand.