France's Hollande at risk of losing gamble on steel furnaces

* Hollande seeks to showcase industrial muscle at Florange

* Plan could expose weakness of planned law to stem closures

* Govt risks embarrassment if rescue pledge falls flat

By Catherine Bremer

PARIS, Oct 3 (Reuters) - A quest by President Francois Hollande to show he can halt industrial closures by rescuing two mothballed blast furnaces in northeast France risks backfiring, with industry experts doubting any buyer will come forward.

Hollande latched onto the furnaces during his election campaign, holding them up as symbolic of industrial decline and is now using them as a test bed for a planned law that would force firms to sell troubled plants rather than close them.

With joblessness at over 10 percent and his ratings in free-fall, Hollande persuaded steel giant ArcelorMittal

to grant him a two-month window to find a buyer for the furnaces at Florange - near the German border - before closing them.

Yet industry sources and trade union officials say it is highly unlikely a buyer will be found for the two economically unviable furnaces that sit within a steel plant ArcelorMittal has no intention of selling alongside them.

Losing the fight over Florange would be an embarrassment for Hollande and cast new doubts over his campaign promises to embark on a massive "re-industrialisation" of France and to restore its declining global competitiveness.

The decades-old furnaces are the most costly of the 25 ArcelorMittal operates in Europe. It has already idled nine due to low demand that is also hitting rivals like Germany's ThyssenKrupp and Italy's privately-owned Riva Group.

"I doubt we'll see a queue of bidders for the furnaces as they would face the same problems of sluggish demand and crippling oversupply in the region," said Metal Bulletin Research steel consultant Kashaan Kamal.

For all his promises to halt the decline in industry, since Hollande came to power in May a slew of companies, including carmaker PSA Peugeot and drugmaker Sanofi , have announced mass layoffs.

The region where Florange sits is politically sensitive due to a long history of being fought over by France and Germany for its coal and steel resources.

Past competition for such resources and a desire to prevent further wars between the two countries led to the creation of the European Coal and Steel Community in 1951, which laid the foundation for today's European Union.


Even if a competitor could find a reason to buy the furnaces, others question the logic of running them inside the bigger steel plant ArcelorMittal will still be operating without having their own steel-rolling facilities nearby.

"There is every reason to be sceptical about the likelihood of the government finding a buyer," Philippe Chalmin, a steel expert at Paris-Dauphine University, told the daily La Croix.

"It's hard to imagine any of the big European steel companies wanting to increase their capacity."

The outcome of what Industry Minister Arnaud Montebourg has called a "tug-of-war" over Florange is being watched closely by industry leaders after the government promised a law before the end of the year to stem industrial closures.

National CFDT union leader Francois Chereque said on Tuesday he could not see how a law forcing companies to sell troubled facilities against their will would be constitutional.

"The Florange plant is an interesting test case for the law the Socialists want to pass," said one steel industry source.

"I'd be surprised if they can find a buyer. And if they could find one, does that mean that in the future nobody can close a part of a plant that is unprofitable?"

While ArcelorMittal will try to save the 629 jobs affected by an early retirement plan at the Florange site, which employs 2,750 people, and to move workers elsewhere, employees whose family histories were built on steel are up in arms.

On Tuesday, a few dozen protested outside a meeting where unions told management they would not discuss a shutdown plan, despite the company's desire to start a process that could take several months.

"We know perfectly well that there will not be a buyer," Walter Broccoli, the local FO union leader, told Reuters.

ArcelorMittal says there is no threat to the rest of the Florange plant, which supplies nearby factories making cars, dumper trucks and packaging.

Rather than bring large volumes of iron ore down from the north coast 400 km (250 miles) away to feed the Florange furnaces, it can feed its hot strip and cold-rolling mills more cheaply with slab made at its plant near the port of Dunkirk.

(Additional reporting by Gilbert Reilhac in Strasbourg and Silvia Antonioli in London; Editing by Andrew Osborn)

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