By Alex MacDonald
LONDON--Steel titan ArcelorMittal plans to shut down two blast
furnaces in the third quarter and raise the price for a key
European steel product as it seeks to restore its profit margin to
acceptable levels amid weak European Union steel demand, a person
familiar with the matter said Wednesday.
European steelmakers previously forecast demand would pick up in
the third quarter due to relatively low steel inventories, but the
EU's debt woes have taken their toll on the region's economy and
continue to make steel consumers wary about placing new orders.
European demand for flat steel products is now forecast to drop 8%
in the third quarter compared with the same period a year ago, a
senior executive at one of Europe's five largest steelmakers told
Dow Jones Newswires.
"There is overcapacity in the market. Steelmakers can't fill the
capacity that they have [in operation] regardless of the prices
sacrifices they're prepared to make," the person said.
Wolfgang Eder, chief executive of Austrian specialty steelmaker
Voestalpine AG (VOE.VI) and chairman of Eurofer, the European
steelmakers' association, said two weeks ago that "massive
underutilization of capacity in Europe, especially in the ordinary
steel industry...is resulting in destructive price wars."
ArcelorMittal already has idled seven of its 25 blast furnaces
in Europe and plans to idle another two--one in Dunkirk, France,
and another in Asturias, Spain--in order to reline the furnaces
over a 100-day period in the third quarter. ArcelorMittal might
keep the blast furnaces idled for longer if demand fails to pick
up, the person said.
The planned temporary shutdown of the two furnaces is expected
to remove about 700,000 tons of crude steel production capacity
from the market in the third quarter compared with the second
quarter. Alongside other idled European production capacity,
ArcelorMittal's crude steel production capacity will drop 1.6
million tons in the third quarter compared with the same period a
year before, the person said.
Tata Steel Ltd. (500470.BY), Europe's second-largest steelmaker,
is shutting down a blast furnace in Port Talbot, Wales, next month,
in keeping with its previously announced plans to rebuild the blast
furnace over a 125-day period.
Both companies recently notified their customers of price rises
for certain steel products, despite weak demand. ArcelorMittal
informed its customers that prices for hot rolled coil deliveries
in the third quarter have risen by EUR20, one person said.
India-based Tata steel also informed customers that it has raised
its all-strip steel price by EUR20 in Northern Europe, effective
immediately, another person said.
"We're operating below cash cost for a good number of products,"
one of the people said. Steelmakers are raising steel prices to
compensate for a rise in fixed costs per ton of steel produced as
they cut production.
The price rise would raise hot rolled coil prices to EUR550 a
metric ton in Germany and EUR540/ton in Southern Europe, according
to one of the people.
One of the people familiar with the matter said he wasn't
confident that customers would accept the entire price rise. "I
have my doubts," he said. But he noted that customers, "while
reluctant to take a position, are now starting to telephone," an
indication that they can't afford to sit and wait to make their
steel purchases for much longer.
-Write to Alex MacDonald at alex.macdonald@dowjones.com