KOSICE  - As meltdown menaces Europe’s steel sector, Slovakia is scrambling to keep U.S. Steel — the country’s largest single employer — from selling off a mammoth factory in Kosice, a gritty eastern industrial hub.

Across the EU, the steel sector accounts for some 360,000 jobs at about 500 factories, but production on the continent has slumped from 22 percent of total world output in 2001 to 12 percent in 2011 on weak demand for cars in Europe and cutbacks at auto plants. U.S. Steel Kosice provides more than 11,000 direct and thousands of other indirect jobs in Slovakia, a small eurozone economy of 5.4 million people.

Late last year, the steel company admitted it was considering several buyers.

The admission sent chills down spines in Slovakia especially in the wake of decision by global steel titan ArcelorMittal to shut similar plants in Belgium, Luxembourg and France.

But the demand for steel remains healthy in Slovakia. Three car plants — run by giants Volkswagen, PSA Peugeot Citroen and Kia — gobble up Kosice’s steel.

Despite economic gloom in the European Union — its key export market — business for Slovakia’s auto sector held up last year, making the possible pullout of the Pittsburg-headquartered company a puzzling move to observers.

While U.S. Steel has kept mum about its reasons for a possible exit, Slovakia’s outspoken Prime Minister Robert Fico has hinted strict EU environmental rules, high commodity prices and the end of a 10-year tax holiday were to blame.

Steel runs in the veins of Kosice’s 240,000 residents. Bartolomej Deak started working at the factory 28 years ago.  His two brothers also work there, and his two young sons hope to. “The mood among employees is bad, there’s fear and unease,” he told AFP recently.

Sberbank analyst Vladimir Vano warns that “a new owner might want to shift the focus to the production of higher value-added products, which could mean downsizing of the iron-ore processing part of the factory.”

ArcelorMittal is making such a move in Belgium, prompting job cuts. “It could be a major blow to the overall employment in the Kosice factory,” Vano said. Tatra bank analyst Juraj Valachy believes the possible exit by U.S. Steel could be “a strategic decision after it closed a plant in Serbia last year”.

Opened in the 1960s, the communist state-owned giant Eastern Slovakia Steel Works (VSZ) was sold in 2000, a decade after the regime collapsed.

 Left-of-centre Fico had attacked the previous right-wing government of Mikulas Dzurinda for selling off the factory for $475 million (348 million euros) and giving U.S. Steel a 10-year tax holiday.

But the drive by the now Prime Minister Fico to woo the company comes as joblessness sits at an eight-year high near 15 percent and with economic growth set to slide to 1.2 percent this year, down from 2.3 percent in 2012.

“There is interest on both sides to continue negotiations and find a solution for this investor to stay in Slovakia,” Fico said recently.

EU environmental laws “handicap local firms compared to companies in Ukraine or China, that don’t have to abide by these rules,” he added. Fico has offered U.S. Steel energy incentives to offset the 500 million dollars the company needs to invest into green technologies by 2016 to comply with EU rules.

Meanwhile an attempt this week by Brussels to convince ArcelorMittal to suspend closures in Europe pending the summer launch of an EU-wide plan to save the steel industry fell flat.