Signs of improvement for ailing UK steel market

Economic and political developments in the United Kingdom may have provided a timely boost to the country’s steel market, according to MEPS research respondents.

Heading into the manufacturing sector’s traditional summer holiday period, respondents to July’s research for MEPS International’s European Steel Review reiterated that trading conditions had been challenging in the first seven months of the year. Elevated interest rates – imposed by the Bank of England to combat inflationary pressures – and the previous uncertainty about the timing of the political election were contributory factors.

Demand in the majority of steel-using sectors has been below expectations in the period to the end of July. Investment in public and private projects has slowed. Many high-profile investments, including the HS2 rail scheme, were downgraded. Others were cancelled entirely.

Cause for optimism?

However, steel market participants were given cause for optimism, ahead and during the traditional summer break.

At the start of August, the Bank of England reduced interest rates for the first time since the start of the Covid pandemic. The 0.25 percentage point cut – the same as that implemented by the European Central Bank in June –  gives the impression that the UK’s economy may be improving.

Persistently lower inflation rates could pave the way for further rate cuts later in the year. Steel buyers may begin to have greater confidence in their procurement and investment decisions due to reductions in the cost of finance. A sharp decline is not projected, nevertheless.

Recent political developments have also added a degree of certainty. Trade association, UK Steel, welcomed the Labour Party’s commitment to spend GBP2.5 billion on steel as part of a National Wealth Fund (NWF) plan. Significant investment is being made to upgrade ports, build new gigafactories, accelerate carbon capture and support green hydrogen production.

The new Labour government is pledging to prioritise economic growth. Key measures to stimulate activity include a focus on renewable energy, particularly offshore wind projects. Ambitious plans were also announced for solar power. 

Renewable energy projects require large amounts of steel. Data published by S&P Global predicts that UK steel demand may increase by 26.6 million tonnes by 2030 as a consequence of wind turbine production alone.

UK Steel insists that any new public and private infrastructure projects should use locally sourced steel, and in turn, that further government financial support be provided to domestic steelmakers.

Participants in the UK steel sector’s long product market may view the Labour government’s manifesto proposals with mixed feelings, however.

While new house building targets should present opportunities, planned rail infrastructure and the building of new hospitals – initially put forward by the previous Conservative government – are not seemingly included in the government’s future proposals. 

Near-term price recovery may be short-lived

Market sentiment is improving in the UK’s manufacturing sector. The UK Manufacturing Purchasing Managers’ Index (PMI) increased to 52.1 last month. The Construction PMI rose to 55.3, meanwhile, its highest level since May 2022. A score above 50 indicates growth. The PMIs’ growth is bucking the global trend.

MEPS predicts that flat and long product prices will rise in the UK, in the near term. An extension of mill delivery lead times – because of planned summer stoppages for maintenance – and an expected increase in restocking activity, following the holidays, will support steel manufacturers pricing ambitions.

However, UK steel manufacturers remain uncertain about the potential for price rises and increased demand for the remainder of the year. MEPS expects that any recovery in prices will be short-lived with the seasonally slow fourth quarter fast approaching.

• This article draws on research conducted for the July edition of MEPS International's European Steel Review. The monthly publication features commentaries, prices, indices and forecasts covering key steel markets across Europe. Contact MEPS for details of how to subscribe.