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Steel Director's Briefing Dec 2023

As 2023 draws to a close, the European steel industry is once again navigating a complex blend of market forces and strategic challenges. Offer prices from both Europe and beyond have seen prices increase by more than £50 per tonne. This is despite the 5% shift we have seen in the GBP/USD exchange rate, meaning that prices from outside Europe have increased by more than this.  Analysts project that this upward price movement is likely to continue until late Q1 or early Q2 2024.  These price increases have taken place against a backdrop of limited demand, as producers attempt to offset rising production costs.

The UK market is lagging behind its European and US counterparts in booking forward requirements and achieving comparable price levels. Demand across most sectors remains subdued, with industry observers suggesting that the traditional Christmas slowdown has commenced earlier than usual. This dampened demand, coupled with overstocking issues, has resulted in buyers exercising increased caution. There is a noticeable hesitancy in purchasing new material, underpinned by a lack of confidence in forecasting future requirements.

This cautious approach by buyers is leading to expectations of stock shortages in the first quarter of the new year, primarily due to a lack of replacement material being ordered and delivered. Customers appear to be ordering only what they deem immediately necessary, a strategy that might lead to supply gaps. Additionally, mill lead times have begun to increase, indicating a slow but gradual return of buyers to the market. This change is seen as a reaction to the capacity reduction programs undertaken by some steelmakers and may signal a potential shift in market dynamics.

The profitability of steel producers continues to be a concern, with many reporting losses due to the extremely high cost of energy, with the potential for this to continue over the winter months. Ironically, this situation poses significant challenges to the industry's ambitions to decarbonize and transition toward greener steel production methods. The financial strain and uncertainty is hindering necessary investments in this area, impacting the industry's potential to hit long-term sustainability goals.

Amidst these wider developments, there is a significant level of uncertainty surrounding Tata UK. A major announcement regarding the closure and mothballing of several production units in South Wales was unexpectedly postponed at the last minute, with negotiations still in progress. This development adds to the overall sense of unpredictability in the industry.

In conclusion, the steel industry finds itself in a challenging landscape marked by rising prices, subdued demand, and strategic uncertainty. With buyers adopting a cautious approach due to overstocking and economic uncertainty, there is an anticipation of potential stock shortages early in the new year. Additionally, the high cost of energy continues to impact the profitability of steel producers, complicating efforts towards sustainable and greener production methods. The situation at Tata UK further adds to the industry's unpredictability, highlighting the complex environment that the steel industry must navigate as it moves into 2024.