World's largest steelmaker ArcelorMittal (MT) said Wednesday it's seeking board approval to spin its stainless steel business off as a separately listed company, a move many said could spur the much needed consolidation in a market suffering from oversupply.

The stainless steel sector in Europe needs to consolidate but has so far failed to do so, ArcelorMittal chief financial officer Aditya Mittal said, noting the announcement Wednesday by the company to assess a spin-off.

"It needs consolidation because we have a situation of overcapacity in Europe," Mittal said. He declined to comment on whether a spin-off could be a vehicle for such consolidation but chief financial officer Lakshmi Mittal said any opportunity in the future would be considered.

The spin-off could happen as early as next year depending on board approval, Aditya Mittal said.

Lakshmi Mittal said he would be chairman of the board and that Jean-Yves Gilet would remain the chief executive of the stainless division.

"The spin-off is rising out of the belief that it has strong growth potential," Lakshmi Mittal said.

Liberum Capital said it could finally spur the consolidation discussed for many years.

"Steel companies have been struggling with stainless," said Hermann Reith, a steel analyst at BHF Bank in Frankfurt. "This could be a sign that the sector is changing."

In 2009, EU-27 stainless steel production totaled 5.99 million metric tons and apparent consumption stood at 4.30 million tons, according to data from Eurofer, the association that represents European steelmakers.

"There is not enough demand in Europe for Europe supply," U.K.-based consultancy MEPS International Ltd. said. "The world is also in oversupply. Europe relied on exports but it's difficult now with China and India bringing on their own capacity and they will be net exporters."

ArcelorMittal produced 1.13 million tons of stainless steel in the first half of 2010, up 61% from the same period in 2009 when output fell significantly due to lower demand caused by a general slump in consumption of materials.

"We have not been successful in consolidation in the past," Mittal said, adding that a spin-off will thus help the company focus on products for the stainless steel sector and "maximizing value."

-By Devon Maylie; Dow Jones Newswires; (4420) 7842 9483; devon.maylie@dowjones.com
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