The UK’s leading constructional steelwork contractor said the economy was recovering more slowly than expected and predicted more firms would run into trouble.

Tom Haughey, Severfield chief executive officer, said: “The UK structural steelwork sector is now likely to see substantial rationalisation in the next 12 months, leading ultimately to a more balanced supply/demand equation.”

Severfield experienced heavy falls in profits and margins in the first half, despite cutting capacity by 20% at the start of 2010.

The worsening market saw interim pre-tax profits plummet from £24.6m last time to £8.2m.

Severfield said it had doubled its share of the steelwork market despite revenues falling by a third to £126m from £200m last time.

Underlying operating margin also suffered in the tightening market, falling from 12.7% in 2009 to 6.7%.

Haughey said that over the coming 12 months the rationalisation in industry capacity would bring some recovery in margins.

But he said the recovery in demand would be slower than forecast and warned it was still unclear whether a revival in private investment would come through at a sufficient pace to counteract the impact of planned public spending cuts.

Severfield said its target markets for 2011 and beyond would be power, energy and waste, London commercial offices and infrastructure where there were still good opportunities.

Meanwhile, John Dodds, formerly chief executive of Kier Group, will join the board as a non-executive director on 1 October 2010.