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UK steel industry could see 'renaissance' by exiting ETS in no-deal Brexit: IKB

London — The UK's steel industry could see a "renaissance" if it leaves the EU Emissions Trading System immediately after the country exits the European Union, according to Heinz-Juergen Buechner, managing director for industrials and automotive at IKB Deutsche Industriebank.

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While there are several potential strategies for the UK steel industry in the case of a no-deal Brexit, leaving the ETS straight after the UK's departure from the EU could reduce the cost of crude steel production in the country by Eur30/mt from 2021, Buechner said at the MBI Stahl Tag conference in Frankfurt on Wednesday.

Alongside cheaper pricing for domestic consumers, this would mainly serve as a strategy to be more competitive in export markets, especially as a disorderly Brexit would make it harder to sell steel to the EU27 countries outside the currently existing trade and tariff arrangements.

More than three-quarters of UK steel products were sold into the EU in 2018, mainly to Germany and France, underlining the dependency on EU customers for UK steel makers, Bruechner said.

However, if the UK were to reduce its cost base through an ETS exit, an introduction of EU safeguards against such measures or an EU subsidization of steelexports to the UK to protect the EU27 steel industry were potential responses, Buechner said.

Exports to the US or other non-EU countries could also prove to be challenging for UK steelmakers in this scenario amid increasing competition from steel producers like Turkey and uncertainty around US Section 232 tariffs after the UK's exit from the EU.

Similarly, no-deal Brexit strategies like greater investment in higher quality steel production or high import tariff barriers to protect UK mills from strong EU and non-EU steel inflows and stimulate the domestic steel industry are also likely scenarios, but would likely draw reactive measures from EU steelmakers, Buechner said.

Amid continued uncertainty of trade agreements and trade flows of steel in the face of a potential no-deal Brexit, UK crude steel production is likely to slump further to 6.8 million mt in 2019 and 2020 respectively, compared to 7.3 million mt in 2018, according to IKB estimates.

"The further development of the UK steel production strongly depends on development of Tata's steelworks. It is still open, what a solution for its UK sites will look like," Buechner said.

Tata Steel is the largest steelmaker in the UK employing more than 8,000 people. After the company announced plans in March 2016 to divest from some of its UK steel businesses to focus on core strip products, it has continued to sell or close sites, with the latest closure, of a Newport factory, announced at the beginning of the month.

-- Pascal Dick, pascal.dick@spglobal.com

-- Edited by Alisdair Bowles, alisdair.bowles@spglobal.com