United Kingdom Metals Report Q1 2014
We forecast a modest recovery in the UK steel industry. In line with European counterparts, the UK metals industry has been rocked by low profitability that has led to capacity reductions and disinvestment. However, the worst is probably over for the UK, as slightly stronger domestic demand and recent investment from international firms such as SSI and TATA Steel should arrest the slide in sector fortunes.
We expect the UK autos industry to provide a much needed boost to domestic steel demand, as both vehicle demand and production continue to recover. However, conditions for firms in the steel industry will remain challenging due to a combination of low output prices, high input costs, regulation and weak external demand for UK steel exports. Opportunities for local firms exist in servicing domestic manufacturing such as autos and demand for high end steel products in fast growing but lower technology emerging markets.
On an intercontinental level, in June 2013 the European Commission unveiled an action plan to revive Europe's steel industry, which has been hurt by tumbling demand and plant closures. The 'EU steel action plan' aims to cut red tape, boost apprenticeship schemes and innovation, create a level international playing field and study ways to lessen the burden of energy costs, which account for about 40% of steelmakers' operating expenses. It says existing EU funds should be used to ease the social cost of restructuring, which has caused the loss of 40,000 jobs in recent years, including the planned closure of most facilities at ArcelorMittal in Liege, Belgium. 'The Action Plan is a good starting point, but there still is a lot of work to be done until our sector will substantially benefit from the proposals,' said Gordon Moffat, director general of European steelmakers association Eurofer. Over time, this could prove to be a boost for the UK steel industry.