UK Steel expects continued industry recovery, along with challenges and uncertainty

While post-pandemic recovery in UK steel production and demand should continue in 2022, uncertainty and other issues could dampen this trend, UK Steel Director General Gareth Stace said Jan. 6.

In 2020, the UK produced 7 million mt of crude steel, marking its lowest historic output. In 2021, according to the latest data, January to September production was up 5.2% year on year, with full-year output also expected to be higher.

"For this year, the demand for steel is looking overall positive, but not as strong as Q2-Q3 2021," Stace said in an interview. "We saw here in the UK large important construction projects and if the semi-conductor shortages will ease this will allow the automotive demand to properly recover. Our members have mixed views as to whether this is likely to occur in the first or second half of the year."

One important issues the UK government should address to sustain domestic steelmakers, he said, is the surge in electricity prices. High electricity prices have been an issue for the UK steel industry for a number of months and Stace emphasized how continued high prices could impact steel production and deter the UK steel industry to achieve net-zero emissions.

UK Steel has submitted its report on how to achieve net-zero carbon to the government's UK Steel Council, and while the report has not yet been made public, it is expected to be discussed by the council committee in the near future.

Other issues are how the government approached steel procurement for projects and the impact of the EU-US Section 232 tariff deal.

"We want the UK government to revise its public procurement note for steel," Stace said. "We would like that they engage with the industry and that they look at the value rather than, for example, just at the costs. They should change their approach and consider more the value for UK tax payers. We also want mandatory reporting on origin for steel within the government funded direct and indirect projects, while in the meantime we would like to see a more use of the steel digital library to help to use more local production.

"Also considering that UK is not in the EU anymore, UK projects should have stipulated in homologation to the UK standard and not EU standard," he added.

Stace also underscored that while the EU had managed to scrap the 25% Section 232 tariffs imposed by the US in 2018, former member UK had not yet obtained a similar deal. As consequence, UK steelmakers will remain at a competitive disadvantage to those in the EU, he said.

In fact, US talks with Japan appear to be advancing quicker than with the UK and there are indications the US is in no rush to extend a deal to the UK similar to its agreement with the EU, Stace said.

"This has implications both for export prospects and production," he said.

In a separate note Jan. 6, UK Steel analyst Chrysa Glystra said what was even more concerning is that the deal between the US and the EU risks damaging exports of UK semi-finished products to the EU because these are processed there and re-exported to the US.

"The 'melted and poured' clause in the EU-US deal means that UK exports which would normally obtain EU origin after a certain degree of processing as per the TCA, EU-UK Trade and Cooperation Agreement, and most trade agreements, do not in fact obtain EU origin in so far as the US deal in concerned," Glystra said. "This could therefore put off EU buyers from purchasing UK material."