Grasping for a lifeline

Lower-priced imports from Europe, high energy prices, weak demand and bearish sentiment have cast a cloud over the steel industry in the United Kingdom to the extent that participants are for governmental support. These include workers from Tata Steel, British Steel, Liberty Steel, Celsa Steel, Marcegaglia and Sheffield Forgemasters.

Workers unions also have raised concerns over layoffs if the current weakness in steelmaking continues. In July, members of industry union Unite as well as members of the trade body UK Steel marched to Parliament to raise their demands as the U.K. steel industry struggles to get back on its feet after the coronavirus pandemic.

Threat 1: Energy prices

The first signs of trouble emerged in 2021 as the world began returning to work after the height of the pandemic. Like other European nations, the U.K. was dealing with an energy crisis, which was exacerbated last year after Russia invaded Ukraine.

UK Steel Energy & Climate Change Policy Manager Frank Aaskov notes high energy prices continue to threaten the country’s steel industry. “Prices increased five times in 2022 from prepandemic levels,” he says. “Although prices have since softened, they remain double the pre-COVID-19 levels.”

Moreover, Aaskov says the gap in energy prices between the U.K. and Germany used to be around 20 pounds ($25) per megawatt hour, which widened to 90 pounds ($114) per megawatt hour in 2022 before contracting to 50 pounds ($64) per megawatt hour as of August.

In a statement, Unite says the U.K. government should cut energy costs that are crippling the steel industry and rendering it uncompetitive against other nations.

Threat 2: Low-priced imports

The European Union seeks to impose tariffs under the Carbon Border Adjustment Tax (CBAM) on imports from countries with less stringent environmental regulations. However, some market participants argue CBAM could trigger trade disputes and hamper international cooperation on climate action, disrupting global supply chains and straining diplomatic relations, particularly in countries like the U.K. that rely heavily on carbon-intensive industries.

UK Steel warns of potential devastation to the country’s steel industry if the government fails to introduce its own CBAM. “The U.K. market, lacking equivalent measures, could face an influx of nearly 23 million metric tons of non-EU steel, presenting a substantial risk to domestic production,” Aaskov says, adding that last year, domestic steel production reached a 90-year low at 6 million metric tons.

This would cause a surplus of imported steel with high emissions, ultimately undermining local pricing dynamics. Moreover, 75 percent of U.K. steel exports, worth 3.5 billion pounds sterlings ($4.45 billion), could face trade barriers from the European CBAM unless the U.K. implements its equivalent.

United’s demands also include giving precedence to U.K.-made steel for public sector projects over imports.

UK Steel Director General Gareth Stace says insufficient aid also has held back Britain’s movement toward green steel, noting that the association believes the government’s response to the UK Emission Trading Scheme (UK ETS) consultation that tightens emission limits for industrial, power and aviation sectors has not gone down well with the steel industry.

UK Steel warns that free allowances until 2026 are insufficient to meet decarbonization goals. With only nine years to decarbonize the industry, lack of strategies, detailed plans and long-term financial support has kept producers in the dark over the future. The association advocates for a strong and effective CBAM by 2026, along with UK ETS, to keep imports of steel with high carbon footprints under check.

Threat 3: Lack of government support

A spokesperson from steel manufacturer British Steel says the company’s Scunthorpe works and sites in Teesside and Skinningrove, England, are integral to ensuring Britain has a secure supply of high-quality steel needed for its future. The producer is the U.K.’s only manufacturer of structural sections, which go into three of four major construction projects in the country. It also is the only company in the country making rail and special profiles.

Since it acquired British Steel in March 2020, Jingye Group has invested 330 million pounds ($420 million) in capital projects. With further planned investments, the producer seeks assurance of a competitive landscape for energy and carbon from the government.

“Our decarbonization strategy will help secure low-embedded-carbon steelmaking in the U.K.,” the spokesperson says. “However, we need the British government to adopt the correct policies and frameworks to back our drive to become a clean, green and successful company. Governments in the countries where our major competitors operate have adopted such policies, and the longer we wait for their implementation in the U.K., the more impact this will have on our competitiveness and the country’s ability to meet its carbon objectives.”

Meanwhile, India-based Tata Steel will decide on the fate of its U.K. operations within the next year as some assets approach the end of their operational life. Blast Furnace 4, rebuilt in 2013, is expected to last until 2030, while Blast Furnace 5 had a life extension from 2018 to 2025.

The steelmaker, which acquired the largest steel plant in the U.K., British-Dutch Corus Group, in 2007, has encountered challenges in this market from high costs affecting shipments and production. Between April and June, Tata Steel Europe’s liquid steel production decreased by 25.8 percent to 1.81 million metric tons from 2.44 million metric tons. Meanwhile, deliveries dropped by 7.9 percent to 1.97 million metric tons from 2.14 million metric tons.

The steelmaker, therefore, is unable to invest in modernization without government support. Consequently, the company is negotiating with the U.K. government, seeking fiscal assistance to facilitate the transition to cleaner technology for steelmaking.

Negotiations between Tata Steel and the U.K. government have been delayed over the past two to three years, partly because of changes in the political landscape.

Company officials have engaged with authorities at various levels to discuss potential decarbonization technologies, energy costs, a UK ETS and CBAMs. The company is actively seeking government support and collaboration to address its challenges in the U.K. market.

Impact on ferrous scrap

Elevated electricity prices in the U.K. also remain a concern for scrap yards as they try to accommodate higher production overhead with a diminishing infeed.

“Steel mills in the U.K. continue to secure ferrous scrap at lower levels,” says Shane Mellor of Mellor Metals and board member of the Bureau of International Recycling’s Ferrous Division. “Exports remain the major outlet for scrap, but slow demand for finished products in Turkey has kept demand under pressure, for both exports and the domestic market.”

In the domestic market, the Davis Index for 1/2 old steel has declined by 29 pounds ($37) per metric ton compared with June 2022 to 260 pounds ($331) per metric ton delivered to a U.K. consumer July 20.

“Meanwhile, demand for Turkish finished products remains slow and governs the bids from steelmakers in the country for furnace-ready material,” Mellor says. “Turkey is still the world’s largest net importer of recycled steel. This has hurt the U.K. bulk deep-sea markets with the dockside price for [heaving melting steel Nos. 1 and 2] (80:20) slipping to a year-low and 22 percent below its 2023 peak after a brief rise at the end of May.”

The monthly average Davis Index for Nos. 1 and 2 HMS (80:20) declined by $90.92 per metric ton from $425.43 per metric ton freight on board U.K. port in March to $334.51 per metric ton fob in July.

Mellor adds that the outlook is set to remain bearish for the short to medium term. A shortage of material, however, could support prices if demand strengthens. At present, however, the ongoing Russia-Ukraine war and weak macroeconomic conditions across the globe continue to affect sentiment.

Mayuri Phadnis is Europe editor and markets manager at Davis Index and can be reached at mayuri.phadnis@davisindex.com.