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United Kingdom Metals Report Q1 2010
Business Monitor International, Jan 2010, Pages: 47
Business Monitor International's United Kingdom Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on the United Kingdom's metals industry.
Despite strong growth in British steel and aluminium output forecast for 2010, BMI’s latest UK Metals Report expects long-lasting damage from the recession with plant closures continuing to undermine longterm potential.
BMI estimates that in 2009, British crude steel output fell 26.3% year-on-year (y-o-y) to 9.99mn tonnes, which was only slightly better than the 9.89mn tonnes they had forecast. In Q409, they estimated that crude output was up 22.0% y-o-y and 22.4% quarter-on-quarter (q-o-q) to 3.07mn tonnes, indicating a solid recovery that should see production rise a further 15.3% y-o-y to 11.52mn tonnes in 2010. Hot rolled steel output is also estimated at 7.99mn tonnes in 2009 (down 21.6% y-o-y).
Corus looked set to go ahead with the closure of its Teesside Cast Product (TCP) in January 2010 due to low orders, which will be a major long-term setback for the UK steel industry’s supply of crude steel. The affected operations include the Redcar Blast Furnace, Lackenby steelmaking and the South Bank Coke Ovens. Meanwhile, the British Constructional Steelwork Association has warned that one in four steel contractors could be out of business by end-2010, with most working within dangerously low margins. It has compared the situation to that of the early 1980s, when 25% of steel contractors went into
administration. Even though the market has bottomed out, with fabricated steel stockpiles exhausted, the market upturn threatens to create a new set of adverse conditions with producers facing rising raw material costs and a lack of cash to cover their needs. Margins for steel contractors are under so much pressure that many firms were finding it more cost effective to mothball factories than to work at the prices being demanded by main contractors.
The short-term prognosis is a gradual recovery of demand and output, although we doubt that the pace of growth seen in Q409 will be sustained throughout 2010 and foresees a rocky road ahead. The economy should recover from an estimated -4.7% growth in 2009 and come out of recession in 2010, although the UK is taking longer to recover than France or Germany. Crude steel output should grow 15.3% to 11.52mn tonnes and hot-rolled output will rise by around 11.8% to 8.94mn tonnes. Apparent steel consumption will grow 9.8%, having fallen by 30.2% in 2009.
BMI believes that the recession, which is seeing many producers in the steel industry going out of business, will have a permanent impact on the British steel industry. Following a V-shaped recovery in 2010 caused primarily due to a very low base effect, we do not envisage crude steel output returning to pre-recession levels in the next five years and hot-rolled output will stay under 10mn tonnes per annum (tpa) in large part due to plant closures. The publisher also concedes that their forecasts may prove to be optimistic with little or no growth from 2011 onwards. While BMI expects the UK’s steel and aluminium markets to return to around 2007 levels by 2014, this may not be enough to ensure the recovery of domestic producers. Aluminium smelting is particularly vulnerable, with some commentators predicting the end of primary aluminium production due to the closure of power plants under EU directives. The closure of the Anglesey smelter in September 2009, in response to a lack of long-term supply of cheap electricity, will reduce primary aluminium production capacity to 221,000tpa. BMI does not expect output to reach full capacity until 2014, but without Anglesey it will still be 40% down on 2007 levels.
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