-- EU Steel demand is only forecast to start recovering from 2Q13, says Eurofer

-- Eurofer previously expected EU steel demand to start recovering in 3Q12

-- EU steel demand to remain subdued due to weak consumer confidence, credit issues

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By Alex MacDonald

LONDON--European Union steel demand is expected to remain depressed for longer than expected with a recovery now only likely from the second quarter of 2013, the European steel association or Eurofer, said Monday.

The association's gloomy outlook echoes comments made by other European steelmakers such as ArcelorMittal (MT), the world's largest steelmaker, and Austria's Voestalpine AG (VOE.IE), which have said that the industry is suffering from excess production capacity at a time of frail steel demand.

"Weak confidence in combination with liquidity and credit issues is showing a negative impact on the EU business climate," said Eurofer's Director General Gordon Moffat. "With global economic growth currently hitting a soft patch, export growth is also cooling down, despite the weaker euro. This is bad news for the manufacturing sector and for steel consumption in the EU," he added.

Eurofer expects EU apparent steel demand to drop 5% this year to 149 million metric tons compared with its previous forecast in May for a 2.7% drop to 153 million tons. Normal demand was about 200 million tons prior to the financial crisis of 2008. The current decline is attributed in part to lower-than-expected automotive and construction industrial activity which account for more than half of EU steel consumption, according to Eurofer.

The association now only expects apparent demand to start recovering on year in the second quarter of 2013 compared to previous expectations for a recovery starting this quarter.

"Our base case scenario is still a moderate improvement of the business cycle in 2013 and a corresponding pick-up in real and apparent consumption. However, confidence and access to finance need to improve to get the market moving upward again," Mr. Moffat said.

Europe's top three largest steelmakers, ArcelorMittal (MT), Tata Steel Ltd. (500470.BY), and ThyssenKrupp AG (TKA.XE), are already taking steps to curb their production capacity. The first two are planning to only restart blast furnaces (shut in the current quarter) if demand picks up.

EU real steel demand is also forecast to only start recovering from the second quarter of 2013 after dropping 2.6% in 2012 compared to a 1.4% drop in its May forecast. EU real steel demand will then rise 1.4% in 2013 compared to a previous forecast for a 1.8% rise.

On the international front, EU steel imports are forecast to drop 23% this year due to a weaker euro against the dollar and anemic steel demand. At the same time EU exports are forecast to rise 3.5% for similar reasons, with North African markets, particularly Algeria, showing greater interest in EU long steel products.

-Write to Alex MacDonald at alex.macdonald@dowjones.com