European demand for stainless steel is likely to remain weak at least until next year as economic stagnation in the region and tight finance crimp major consumers such as the automotive and construction sectors, market participants told Reuters.

Stainless steel prices have shed about 15 percent of their value in the last six months, due to overcapacity, poor demand and falling prices for raw materials such as nickel.

Demand weakness will persist in Europe until serious plans emerge to address the euro zone debt crisis, market players said on the sidelines of the Metal Bulletin stainless steel conference this week.

"I expect demand will remain weak, at least until 2013," a Scandinavian trader said. "Nobody is very optimistic at the moment. I don’t even know if things will get better in the first quarter next year."

Franz Rotter, a member of the board of Austrian steelmaker Voestalpine, said in an interview there are no signals that the special steel market will turn around at least until next year.

"It’s like the perfect storm: we have got the euro crisis and the recession, we have got overcapacity, we have got cheap imports and now a slowdown in China," a producer said, adding that no more than one or two stainless steel companies worldwide were still making money at present.

Importers of foreign material into Europe also said they were finding it increasingly difficult to sell stainless steel in the region.

One was particularly pessimistic.

"My company’s view it that 2013 will be bad. Even worse than 2012," he said. "This is mainly due to scarce resolution of European politician to solve the crisis. They are only offering short-term solutions."

Stockholders, service centres and trading companies, which are the middle-men between producers and end-users, were also under pressure.

Due to the price fall of the last few months many of them have seen the value of their inventories drop dramatically and the smaller among them are being strangled by poor availability of finance.

Oversupply remains a main issue for the industry in Europe and globally.

Bernardo Velazquez, the chief executive of Spain’s Acerinox said this week that although some European mills are reducing steel melting capacity, this will not necessarily help the sector as nobody is idling rolling facilities, which process crude steel into the final sale product.

Overcapacity and slowing demand are also major problems for top stainless steel producer and consumer China.

A $157 billion infrastructure spending plan revealed by the Chinese government last week is a positive sign for the steel market but is still not enough to help steel prices in the near term, market players said.

"This is positive but we need to see more of this," a source at an Asian producer said. "A lot more."