Disclaimer: This is an example of a student written essay.
Click here for sample essays written by our professional writers.

Any information contained within this essay is intended for educational purposes only. It should not be treated as authoritative or accurate when considering investments or other financial products.

UK Iron and Steel Industry: Market Trends

Paper Type: Free Essay Subject: Economics
Wordcount: 1892 words Published: 12th Jul 2018

Reference this

Basic Iron and steel in UK – Analysis

Headlines

  • UK’s basic iron and steel market contracted by 6.8% to £10.6 billion in 2013 as prices of steel declined due to the overcapacity in steel production
  • Industry of structural metal products increased its purchase of steel due to the growing private housing sector in UK in 2013
  • Motor vehicles, trailer and semi-trailers decreased their share of purchases in the industry by 12% as it is substituted with aluminium in pursue of lower CO2 emissions
  • In 2013 EU Commission creates Communication Action Plan for a development of competitive and sustainable steel industry in Europe
  • Basic iron and steel industry is expected to continue falling by 2% in 2014 due to oversupply in UK steel production and iron ore mining globally

MArket Trends

  • Basic iron and steel market in the UK declined by 6.8% to £10.7 billion in 2013. Although the main buyer in the industry – structural metal products increased its share of purchases over the year, the industry still felt the pressure from overcapacity and declining prices of steel in Europe.
  • Structural metal products producers were the key buyer in the basic iron and steel industry accounting for 18% of the B2B purchases which stood at £1.9 billion in 2013. The share increased usage in construction sector which was boosted by the rapidly growing private housing segment and overall construction output in the UK. Private Housebuilding was driven by the government’s deposit guarantee programme Help to Buy designed for purchases of new homes in the UK.
  • Motor vehicles, trailer and semi-trailers accounted for 12% of the purchases in the industry. Despite a 1.3% increase in number of vehicles manufactured, acquisitions of basic iron and steel declined by 12%. Demand of steel from automotive industry is declining due to increasing use of aluminium. Vehicle manufacturers are reducing vehicle weight in order to cut CO2 emissions in order to comply with new EU standards.
  • Basic iron, steel and ferroalloys accounted for 46% of the market size in the industry in 2013. After experiencing a 2% decrease its market value stood at £4.9 billion. The decline was determined by the decreasing prices of steel products. HRC Europe steel prices declined by 6.4% in 2013 due to oversupply of steel in the global market.
  • As well as global steel market, the European market has been confronting a growing overcapacity of steel production and declining demand over the recent years. To address the issues of struggling EU market of iron and steel industry, an EU-wide plan named Commission Communication Action Plan for a sustainable and competitive steel industry in Europe was created on June, 2013. Currently, the plan is offering to reduce or remove electricity feed-in tariffs related to renewable electricity on energy-intensive industries to make them more competitive internationally.
  • In 2013 import penetration fell by 9% and accounted for 65% of the market size reaching value of £5.8 billion. The imports decreased due to the overcapacity in the global steel production and restart of Teesside steel plant which increased the output of steel in the country in 2013.
  • Currently active antidumping duties on Chinese wire rods are about to expire. In April, 2014 European steel association Eurofer inquired for an over 20% anti-dumping charge for Chinese wire rod in order to protect EU producers. The new query will prolong the duty by approximately 15 months until the answer is given.

production Trends

  • Overcapacity has been pressuring UK’s as well as the global iron and steel market. Production capacity of steel increased by 118 million tonnes over the last two years and is expected to total in 2,2 billion tonnes in 2014. However, UK’s production decreased only by marginal 1% over 2013. Though different segments managed to grow as e.g. production of basic iron, steel and ferroalloys recorded a 2% increase and accounted for 62% of total industry’s production.
  • While the industry has marginally declined some companies managed to increase their production. E.g. Teesside Steel Co owned by Thailand SSI renewed its production in the UK in 2013. In addition, during the same year Teesside Steel Co recorded its production record in Red car plant after expanding its production capacity. The steel output in the industry was also supported by improvements of the Tata Steel’s Port Talbot plant. Its blast furnace was rebuilt increasing steel production over the same year.
  • Recycling of metal waste and scrap industry accounts for 16% of basic ferrous and non-ferrous industry costs in UK. Approximately 13 million tons of scrap metal are being processed by steel industry annually. Recycling is important to UK producers as it allows to keep emissions, energy consumption and total costs at bay in comparison to steel production from ore.
  • Mining of metal ores made 12% of total costs in UK during 2013. Despite an increase in production of basic iron and steel at constant price of 1.2% , costs related to mining of metal ores declined by 1%. Decrease in metal ore costs was driven by decline in price of iron ore in second half of the year as global production of iron ore grew by 5% accounting for approximately 2 billion tonnes in 2013.
  • Exports of basic iron and steel accounted for 65% of total production and recorded a 0.7% growth in 2013. Exports were driven by the growing demand from emerging economies such as Turkey which accounted for 11% of the UK’s exports. Growing Turkish construction and transportation expenditures positively affected the demand for UK’s production. Steel, basic iron and ferroalloys experienced a 2% increase in the share of industry’s exports.
  • 2013 profits almost doubled which left them standing at £783 million. The industry benefited from a 7% decrease in its costs which had positively reflected on the profits.

Competitive Landscape

  • The top 5 companies in the basic iron and steel industry accounted for 20% of total production in the UK in 2013. The leader with 14% was Tata Steel UK Ltd. The company was followed by other industry’s players accounting for a less significant share of production: Caparo Steel Products Ltd (2%), Hill & Smith Holdings Plc (2%), and Thamesteel Ltd (1%).
  • Tata Steel UK Ltd a subsidiary of the Tata Steel Europe is a UK-based company that specializes in production of basic iron and steel. It has 3 plants located in the UK with 18,000 employees. In October, 2013 the company announced it will build Vacuum Induction Melting (VIM) furnace at its Stocksbridge site in South Yorkshire, UK. It has also increased its steel output from Tata Steel’s Port Talbot plant due to the reconstuction of its blast furnace. The development had a significant impact on growing steel production in the UK in 2013. By 2016 the company is planning on investing £400 million in long products business. However, due to the sluggish demand in the market Tata Steel has been considering selling parts of its operation in the UK due to the underutilization.
  • Caparo Steel Products Ltd of Caparo Group is a company located in the UK that specializes in production of basic iron and steel. The company is based in London, UK, with additional locations in the UK, India, Spain, Poland, North America, Canada, and Dubai. Caparo Steel has 1,000 employees in the UK. In October, 2014 the group announced plans to invest €4 million in its UK and Polish operations. The company has been reviewing its operations in UK and announced plans to consolidate its production in one site considering to close the wire company in Wrexham, UK. However, workers are expected to keep their jobs as company anticipates using the other base for testing technologies and steel distribution.
  • Hill & Smith Holdings Plc is a company that produces galvanized iron and steel. It operates under the following segments: Infrastructure Products, Galvanizing Services, Building and Construction Products and employs over 700 workers. The company has also upgraded its plant in Chesterfield, UK. In general, production volumes of steel products increased by 18% in 2013 due to the the expansion into emerging markets. On April, 2013 the group acquired a large plant in Kent, UK operated by Medway Galvanising Co Ltd. In addition, Hill & Smith Holdingd acquired trade and specific assets of Arkinstall Galvanizing Ltd.
  • Thamesteel Ltd is a UK-based subsidiary of Al-Tuwairqi Holding. The company specializes in steel manufacturing and operates a 50 acre site in Sheerness, on the Isle of Sheppey, UK and employs 400 workers. The plant went into administration in 2012 it became the property of Al-Tuwairqi Group. However, the new negotiations have been taking place in 2013 to reopen a rolling mill using imported steel billets and then exporting its production again. New mill is expected to employ around 120 workers; however, the plan is still in state of negotiations.

Prospects

  • Basic iron and steel industry in UK is expected to further decline by 2% in 2014 and over the period of 2013-2019 the industry is anticipated to record a negative 1% CAGR. Drawing of iron and steel is expected to record an 11% drop in turnover due to the continuing surplus in the industry and slumping demand.
  • Average global iron ore price in 2014 is expected to decline approximately 49% in 2013 translating into further decreasing costs for the industry. It is not expected for global iron ore price to return to US$100 level for near future as world production output is going to further increase at faster pace than demand. By 2018 global iron-ore surplus is expected to reach 300 million tons.
  • UK’s market of steel is expected to remain weak over the forecast period due to the overcapacity of steel production in UK and globally. As a result production of basic iron, steel and ferroalloys is anticipated to experience slowdown in its CAGR.
  • Due to prolonged decline in production of steel in Europe, steel industry is expected to become one of the main focuses by EU Commission over the forecast period. Reduction and restructuration of capacity in the industry will also play a significant role as EU Commission is aiming at reaching the contribution of steel market towards EU GDP to increase from current 15% – to 20% by 2020.
  • The industry is expected to be less pressured by the prices of power and gas as the Government has announced its prediction of wholesale prices to remain fairly steady until 2020 when electricity price is expected to reach £54 per MWh. However, latter prices are expected to challenge the competitiveness of electricity from wind farms and nuclear plants further.

 

Cite This Work

To export a reference to this article please select a referencing stye below:

Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.

Related Services

View all

DMCA / Removal Request

If you are the original writer of this essay and no longer wish to have your work published on UKEssays.com then please: