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UK steel output to hit 'record low' this year; 2023 prospects uncertain: UK Steel Forum

Highlights

Output at less than half 2000 level

Steel imports stable

New investment may depend on future business climate

  • Author
  • Diana Kinch
  • Editor
  • Richard Rubin
  • Commodity
  • Electric Power Oil Metals

The UK steel industry is set to produce at a record low this year, its lowest since World War II, and it's hard to say if 2023 will see an upturn, an official with the UK-based International Steel Statistics Bureau said Sept. 22.

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Output is set to fall to below 7 million mt of crude steel in 2022, from 7.2 million mt in 2021 and 7 million mt in 2020 when it suffered a COVID-19-related markets slump, said Steve Andrews, the bureau's commercial manager, at the first UK Steel Forum. Held in London and organized by a group of six steel industry associations including producers' group UK Steel, UK-based International Steel Trade Association ISTA and European steel distributors' association Eurometal.

This year's fall in output occurs in a context of falling steel production globally, Andrews noted. The World Steel Association announced Sept. 22 that global crude steel production was down 5.1% on-year in the January-August period, to 1.25 billion mt: the only region to show an increase in output during the period was the Middle East, which has suffered less with energy price rises than other regions in recent months.

"UK steel production has been falling for decades," Andrews said at the event, convened by the six associations with a view to enhancing mutual cooperation to the benefit of the overall industry. "In 2000 UK production was 15 million mt, and now it's half that level."

The sector lost some capacity around six years ago on Teesside, with the closure of the Sahaviriya Steel Industries UK (SSI) steel slab plant, he said.

'Subdued' second half

In the UK, the second half of the year will be "subdued" in terms of market demand, particularly in the automotive sector, while "rampant" inflation -- currently hovering around 10% on an annual basis -- will have a knock-on effect on consumer confidence and spending, Andrews said.

Construction industry PMI indicators at below 50 are at their lowest level for "quite some time", and a dampener on the market, the ISSB executive continued. On the brighter side, a recovery in the aerospace sector supports production of specialized products, while a higher oil price could support the tube and pipe market.

Steel import levels into the UK at 3.15 million mt in January-June this year were virtually stable on-year, though slightly less originated this year from the European Union, which supplied 58% of the total, and slightly more from the rest of the world, which supplied 42%, according to ISSB data.

Other factors seen impacting the health of the UK steel sector this year are the increasing energy costs which have more than offset the benefits of lower raw material costs, a large disparity between prices in Asia and Europe and higher interest rates threatening mortgage availability.

ISSB figures show that in 2020 it cost just over GBP400 ($450.20), including electricity and other costs, to produce a metric ton of long steel via an electric arc furnace in the UK, and in August 2022 it cost around GBP790/mt. Now, even with the energy price cap introduced Sept. 21 by the UK government for the October 2022-March 2023 period it will cost around GBP970/mt, which is currently above average market prices for long products in Northern Europe.

Platts assessed domestic EXW NW Europe rebar at Eur960/mt ($944/mt orGBP834/mt) Sept. 21. Platts is part of S&P Global Commodity Insights.

UK Steel Director General Gareth Stace said that what is important to UK steel producers is "the relative price of energy compared to our competitors rather than the absolute price."

With the new energy price cap introduced by the government, UK steelmakers will now be paying less for their energy than German and French steelmakers although "we expect the German and French governments to take further action," Stace said. With the price cap, UK producers will be paying GBP199/Mwh, compared to GBP278/Mwh in Germany and GBP217/Mwh in France, Stace said.

Stace added that there are expectations that the UK steel sector will grow in future.

However, "investments will come only if the government creates a competitive business landscape, including competitive energy prices and business rates, and if the government is able to create a market for green steel, favoring green steel from the UK to go into infrastructure projects," he said. "Energy is still five times higher than the last five-year average," he said.

The UK's crude steelmakers belong mainly to foreign-based groups: Tata Steel UK (a subsidiary of India's major Tata industrial group); British Steel (acquired by China's Jingye Group in 2020); Liberty Steel, owned by Sanjeev Gupta's GFG Alliance; Spanish Celsa Steel, Finnish Outokumpu; and UK Ministry of Defence-owned Sheffield Forgemasters. There are also numerous rolling and distribution facilities.