Given the fact that the global steel price is at its lowest level in more than a decade, it is no surprise that much of the UK’s production is becoming economically unviable.
[Reposted from Sky Business News | October 16, 2015]
Due to the economic slowdown in China their demand for steel has waned; down 4% last year and likely to be 5-6% lower this year, according to Richard White at the International Steel Statistics Bureau.
This translates to a huge glut of Chinese steel which is no longer required domestically; prompting Chinese steel exports to double in 2014.
In that year alone, its exports increased by more than the entire annual steel production of Mexico and Canada combined.
This means that China is now exporting 100 million tons of steel per year at prices which are below the Chinese cost of production, let alone the costs associated with UK steel production.
The majority of Chinese steel-makers are currently loss-making, with very few mills refusing to cut production and even fewer considering shut down.
In a scenario very similar to the one being played out in the crude oil market, steel-makers are playing a loss-making waiting game - hoping that prices reverse before they are forced out of the game altogether.
Analysts believe that only a sharp reduction in capacity will allow the markets to stabilise.
Until either Chinese capacity is reduced or a resurgence in Chinese economic growth is realised, prices will continue to slide.
The price of slab steel has dropped by 40% from around £318 a ton to under £191 in the past year.
These lower prices - twinned with a rebound in economic activity in the UK - have pushed up demand for Chinese steel.
Imports are up 23% year-on-year in the first seven months of 2015 and up 129% compared to this period in 2013.
But it is not only the cut price imports which are hampering the UK’s steel industry.
The strengthening pound means that steel from our eurozone competitors is 12% cheaper than it was early last year.
Furthermore, business energy costs and rates are also significantly higher in the UK, which also damages the UK’s steel competitiveness.
Figures from the Department of Energy and Climate Change indicate that electricity prices in the UK were 82% higher than the EU average for extra-large consumers in the first half of this year.
This disparity has doubled in just two years.
Earlier this year, SSI UK’s boss, Cornelius Louwrens, claimed that Redcar would be fully profitable by 2016.
Unfortunately this prediction could not have been further from reality.
Whether we will even have a steel industry by the end of 2016 is now of worrying concern, not least for the 30,000 people it still employs.