State intervention counterproductive for steel - Voestalpine

LONDON Thu Dec 6, 2012 1:14pm GMT

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LONDON (Reuters) - It is unwise for governments to intervene to avoid the closure of steel plants in the euro zone's oversupplied market, the chief executive of Austrian steelmaker Voestalpine (VOES.VI) said in an interview on Thursday.

In the last few weeks both the French and Italian governments have considered nationalising steel plants facing closures due to falling demand, overcapacity and loss of competitiveness.

In the euro zone, steel production currently exceeds demand by about 50 million tonnes a year, or about 30 percent.

"European politics and politicians have to see that business is a dynamic process, companies and products come up, peak and then phase out," Wolfgang Eder, who is also the president of the European steel industry body Eurofer said in a telephone interview.

"It does not make sense to artificially extend their life time by pumping in money which does not help them to survive in the long run. The danger of protectionism, which is always linked to subsidies, is increasing," he added.

The French government backed away last week from a threat to nationalise a steel plant in Florange, only after it secured promises from its owner, the world's largest steel producer, ArcelorMittal (ISPA.AS), that it will invest and avoid forced layoffs.

Italy's industry minister said last week the state could take over the ILVA steel plant from the current owners, the privately held Riva Group, if environmental and technological upgrades set out by government were not made.

Preventing any plants from being shut down when it had lost its competitiveness was politically unwise and not fair for the workers as it created more uncertainty, Eder said.

A better option would be to allow controlled, smooth shutdowns that allowed workers to find new jobs, he said.

The EU steel industry is going through a structural crisis and plants closures are needed to see an improvement, market players have said.

"In the things that are going on in some parts of Europe I do see real danger that we are back in times which we should have passed in the last decades; it reminds me of the 70s and 80s. We should let things go as they have to go," Eder said, referring to the years when state intervention and subsidies were common practice in the European steel industry.

He said Voestalpine itself was a state-owned company that went bankrupt in 1985 as "in the 80s politicians thought they need not care about market mechanisms."

PEAK TIMES ARE OVER

With a debt crisis weighing heavily on economic activities, the World Steel Association expects steel use to fall by 6 percent in the euro zone in 2012, with Spain and Italy registering a 12 and 13 percent plunge, respectively.

"I am personally convinced that demand will not go back to pre-crisis levels," Eder said, adding the EU will not be able to afford high infrastructure investment due to budget restrictions and private construction activity had gone past its peak.

The automotive industry would also require less steel as players there were building new plants in emerging markets in Asia and the Americas and moving production from Europe to those countries, Eder said.

Voestalpine is currently working at 95-100 percent of its production capacity, and although there might be slight reductions at smaller sites, it expects to be able to maintain average utilisation levels at least at around 95 percent in the next few months.

Eder said he expected restocking to help steel demand in early 2013, as inventories overall in the industrial segment were at a low level.

(Editing by James Jukwey)

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