Steel stockholder Richardsons Westgarth issued a profit warning last week, sending a chill through the engineering sector.
The company produces steel coils for manufacturers and its fortunes are seen as a bellwhether for the industry.
It had warned that it expected a ‘significant’ drop in profitability in the second half due to pressure on selling prices and margins. First half profits had fallen from £2.96m last year to £1.54m.
The company last year made a pre-tax profit of £6.13m on sales of £126.5m.
It admitted its policy of remaining loyal to existing suppliers had ‘resulted in serious price disadvantages’ but it thought the policy was right for the long term.
Managing director Philip Hurst admitted: ‘The outlook is one of deterioration.’ The firm’s shares slumped 10.5p to 25.5p on the news.
The warning came as steel producers said they were pressing the European Commission to help stem the flood of cheap steel imports from the Far East.
Producers fear that protectionist measures by US authorities, in response to a slump in steel prices, could lead to Europe being flooded by cheap imported steel.