April 7, 2009 / 11:37 AM / 11 years ago

UPDATE 1-German steel output down by half in record fall

* Fall in March crude steel output steepest in nearly 19 yrs

* Latest data shows no recovery in sector - analysts

* Trend could force ThyssenKrupp to cut jobs - analysts

* German steel shares fall

(Adds analysts comments, share price)

FRANKFURT, April 7 (Reuters) - German crude steel output halved in March, the steepest fall in almost 19 years, continuing a downward trend that could see the nation’s largest steelmaker, ThyssenKrupp (TKAG.DE), to trim its workforce.

The Federal Statistics Office on Tuesday said 2.10 million tonnes of raw steel were produced in March, down 49.8 percent year on year.

Europe’s biggest economy has been hit hard by the global downturn, with manufacturing orders falling sharply since the end of 2007. Industrial output posted a record drop in January.

Brokerage Merck Finck said the negative sector trend has considerably strengthened, but this was expected as local plants were only producing 50 percent to 65 percent of capacity.

“However, based on this utilization (rate) we would have expected a little bit better production figures,” it said.

“Even if this might turn out to be the sharpest decline in 2009, we still expect no real recovery of the production figures in the forthcoming months,” it said.

Another analyst, who spoke on condition of anonymity, also said the March data was a slightly negative surprise.

“We saw a 35 percent decline in February and then in March 50 percent, this means the negative trend has accelerated,” the analyst said.

“I assume ThyssenKrupp is mainly affected by all of these (monthly data) because they are producing flat carbon steel, whose end customers are automotive and the machine engineering sectors,” he said.

“At the end of the day, ThyssenKrupp has to make a decision that if demand does not recover in the short-term, say in the second half, it would have to adjust capacities further, which means mandatory layoffs,” he said.

Credit Suisse analyst Michael Shillaker said significant destocking is going on worldwide and production cuts appear to be undershooting the very weak sector demand.

“We are now trawling along the trough,” he said.

“ThyssenKrupp has already announced some 1.5 billion euros ($2.03 billion) of cost savings and I’m sure there would be some labour reductions,” he added.

About 14,000 ThyssenKrupp workers staged a demonstration on Monday, urging the company not to cut jobs against the will of workers.

Chief Executive Ekkhard Schulz, who wants to reorganize the company by October this year to make it leaner and save up to 500 million euros, said he would not rule out mandatory cuts.

Grappling with shrinking demand for cars and ships, ThyssenKrupp has said it expects operating losses before restructuring costs during the three months to March 31 and only a slightly positive operating profit in the first half of its fiscal year to Sept. 30, 2009.

Since autumn, it has put about 30,000 of its roughly 85,000 workers in Germany on a shortened working-hours programme and cancelled contracts of about 5,000 temporary workers.

Meanwhile, IG Metall trade union said it opposed any mandatory lay-offs of 100 of the 150 workers at a crankshaft plant that would be closed down in September.

By 1046 GMT, shares in ThyssenKrupp were down 3.4 percent at 14.85, while Salzgitter (SZGG.DE), Germany’s second biggest steel maker, were down 4.6 percent, both underperforming a 0.9 percent fall Frankfurt’s blue chip board .GDAX. (Editing by Andrew Macdonald) ($1=.7389 Euro)

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