Boston, MA -- (SBWIRE) -- 06/13/2012 -- The French steel industry held up well in 2011, but 2012 promises to be a more challenging year with the automotive and construction industries reporting a contraction in activity in Q112, according to BMI's latest France Metals Report.

In 2011 France's crude steel production amounted to 15.78mn tonnes (mnt), a rise of 2.3% year-on-year (y-o-y), which was slightly below the 15.82mn tonnes we had forecast. EAF output, which contributes around a third of steelmaking capacity, led growth with blast furnace production remaining sluggish. EAF production rose by 9.4%, while steel production with blast furnace production declined 1.6%. However, output was still 18% below 2007 levels. Production was supported by household spending and export growth, although these diminished as the year progressed. In the first two months of 2011, crude steel output was up 10.4% y-o-y to 2.66mn tonnes with indications that manufacturing was stabilising, although the automotive and construction industries were contracting.

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ArcelorMittal's management closed its first blast furnace at Florange in July 2011 and the second furnace from October 2011 in response to sluggish growth in European steel consumption and overcapacity. The company also anticipated lower demand going into 2012. It is unlikely that either plant at the site will resume operations until mid-2012 at the earliest, leading to a moderation in output in 2012. The Florange plant is likely to remain offline until at least the end of June with union leaders suggesting it could be shut for the entire year. With this in mind, BMI has stayed with its output forecast of 15.5mn tonnes in 2012, a decline of 1.6% y-o-y.

By 2016 crude production and hot-rolled output should reach 17.0mnt and 15.1mnt respectively, which is still well down on pre-recession levels. Aluminium should fare better, helped in part by its use in lighter and more fuel-efficient vehicles. Also by 2016, aluminium production should have recovered to 2008 levels, provided there is no closure of capacity. The French steel industry will undergo the same process of 'delocalisation' as other industrial sectors. In the longer term, however, we believe French production remains susceptible to production erosion, if not complete factory closures. Over time, we expect carmakers to be more inclined to boost production overseas and gradually reduce production domestically, meaning that a full recovery in auto production may be difficult to attain and therefore holding back consumption levels.

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