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United Kingdom Metals Report Q1 2011
Business Monitor International, Feb 2011, Pages: 46
The 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 United Kingdom's metals industry.
The British steel industry is set for a slow recovery following another dismal year in 2010, although the planned acquisition of Tata Steel’s mothballed complex in Teesside by a Thai steelmaker is welcome news in an otherwise gloomy outlook, according to this latest UK Metals Report from BMI.
The recovery in British steel production that built up in Q409 appeared to slip away in 2010, with the slowdown in H210 far worse than anticipated. From the peak of 1.16mn tonnes in December 2009, monthly output fell in subsequent months to well below 900,000 tonnes per month, as the pace of recovery slowed and the country’s economy looked set to dip into another recession. In Q410, production was down by 20% year-on- year (y-o-y) but was up 3% quarter-on-quarter (q-o-q), indicating a modest upturn. The flagging performance in 2010 comes after crude output had slumped 25.6% y-o-y to 10.06mn tonnes and hot rolled output declined 21.6% to 7.46mn tonnes in 2009.
Steel industry capacity utilisation rates remain at lows not seen for decades due to 'lighter' order books and lingering uncertainty over the domestic and external economic climate, which is preventing firms from ramping up production. The short-term risks are on the downside, due to the effects of fiscal consolidation. Austerity measures introduced by the new coalition government have compounded the uncertainties facing the industry and fears abound that reduced spending will depress steel demand.
Recession-level steel output comes amid a fiscal retrenchment programme, weakness in external demand and lacklustre performance in domestic spending and investment. An industry-led recovery, on which the steel industry will depend, will be limited and growth will be largely the result of low base effects, rather than a fundamental demand-led recovery. External orders for steel are set to remain subdued through the medium term, particularly from the Eurozone where major fiscal consolidation, weak bank lending and internal devaluations in weaker member economies will restrict export demand going forward. The domestic situation will also remain poor.
A poor performance in 2010, coupled with little prospect of growth in 2011, low prices and high raw material costs means that it will not be until 2012 before the British steel industry begins a serious recovery. Prerecession levels of consumption are likely to be achieved by 2015, but this will benefit imports more than domestic output. The British steel industry may never return to pre-2008 output and BMI expects a reduction in long-term capacity.
Plans by Thai steelmaker Sahaviriya Steel Industries (SSI) to acquire the Teesside Cast Products (TCP) complex from Tata Steel will represent a life-line to a significant British steel producer. In December 2010, SSI announced that it was seeking to raise US$200mn in a private placement and rights issue that will fund the acquisition having signed a memorandum of understanding (MoU) in August for the sale of TCP to SSI for US$500mn. It hopes to complete the process in Q111, which should secure the plant’s future.
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