The Uncertainty Continues - October 2022 Steel Director's Briefing
Not for the first time over the last few years, I sit down to write this and the overarching theme is one of uncertainty. The war in Ukraine, reduced worldwide demand, soaring energy costs and government instability in the UK make it very difficult for businesses to plan ahead confidently.
From a steel industry perspective, Worldwide demand has been weak. In Europe, we’ve not seen the expected uplift after the summer holiday period, with buyers understandably remaining cautious. In the UK, the passing of Her Late Majesty Queen Elizabeth II and the period of mourning that followed, almost certainly created a lull in business activity and delayed government decision-making.
Moreover, hopes that a new Prime Minister and Chancellor would add some clarity to the political climate have been quashed with the political and economic fallout from the ‘mini-budget’ only adding to the uncertainty described above.
Demand in China is still low, and automotive activity has not recovered in line with earlier expectations. In fact, schedules have been reduced rather than increased over recent weeks Jaguar Land Rover, for example, announced that they will be taking out capacity for Q4.
However, there is evidence to suggest that prices have reached or are close to reaching ‘the bottom’ after recent falls. Over the summer, mills have been busy taking out capacity to better align production with demand. Blast furnaces have been taken offline and production hours reduced in an effort to find the correct balance.
Furthermore, the impact of soaring energy costs on steel production cannot be avoided indefinitely. For example, recent International Steel Statistics Bureau data show that in 2020 it cost just over £400 to produce a tonne of long steel via an electric arc furnace in the UK. By August of 2022, this figure was reportedly around £790/mt, and even with the energy price cap introduced by the UK Government recently, this figure is now around £970 p/t.
Offers from Asia and other non-European mills have been competitive, but the recent volatility of the Pound v US Dollar means prices are changing daily, causing more uncertainty and confusion.
In this climate, UK and European producers will grow in confidence that they can push through the price increases they need to maintain a profitable position. That said, demand is the key to this happening.
This statement, will not come as a surprise - The outlook for Q4 and beyond can only be described as uncertain. We need clarity on energy provision, as the war in Ukraine continues, and a government with an eye on the medium to long-term future for UK manufacturers.
With the new UK government only weeks old, and already having had to back-track, that hope looks increasingly distant.