The UK steel industry is braced for further uncertainty after the British people voted for Brexit in the EU referendum on 23 June 2016. At this stage, however, it is unclear whether or not there will be tangible benefits for British steel. Having addressed the steel crisis before the vote, SSC Laser Cutting in Hixon identified that fundamental changes would be needed to rectify the situation, with UK industry not capable of competing with high-volume, low-cost manufacturers from China and India. So, now that a EU exit is being formulated, it is time to question its impact on British steel.
In the UK steel industry, instability is the biggest immediate threat for struggling manufacturers. With the Brexit vote causing the FTSE 350 index of banking shares to decrease by 11%, any manufacturers that are dependent on short-term loans could have a difficult few years ahead or else face the threat of their loans being recalled early. There has also been recent speculation that Tata Steels UK future could be in question, with the companys key decision-makers allegedly warning in March 2016 that it could leave the country. Thus far, Tata Steel has cut thousands of UK jobs since 2011, with another 1,050 announced in January 2016. With Brexit set to take years of planning and readjustment, Tata Steel might be unwilling to stay and remain patient.
In the short term, the immediate challenge facing the new Conservative government is for Greg Clark, the new business, energy and industrial strategy secretary, to resume negotiations and keep Tata Steel in the UK. Crucially, there are 11,000 British steel jobs dependent on a positive resolution.
Currently, it is worthwhile for UK steel manufacturers to cast their eyes abroad. Although the economic conditions are tough, they have created some advantages within the global market. In the Brexit aftermath, the pound tumbled to record lows, the FTSE 100 briefly faltered, the FTSE 250 declined and consumer confidence fell to a level not seen since the era of the 2008 global economic downturn. For much of the UK economy, voting to leave has not been kind to businesses and their short-term operations, but the same cannot be said for steel.
For the past few years, the issue for British steel is that domestic and foreign customers have sought out cheaper steel from China and India. Well, the recent economic turmoil has created a short-term landscape in which British steel is now more affordable. Since the referendum, the pound has fallen from approximately $1.48 against the dollar to lying in the region of $1.33. Meanwhile, the pound decreased against the euro from 1.30 to 1.17. While a declining pound is bad for buying imports, it means that exports like British steel are now more affordable abroad. Within the UK, it also makes more sense for domestic buyers to use British manufacturers because imported steel is now more expensive. For the moment, British manufacturers have to use the current economic conditions to their advantage.
The pounds devaluation has created a short-term environment that UK steel manufacturers can actually leverage to their benefit. At a moment when other industries are struggling post-Brexit, this is positive news for some British steel companies. However, it is not a time for celebration, as this short-term advantage must be transformed into lasting strengths for the industry. As the UK navigates through Brexit over the next few years, steel manufacturers will lose their export advantage if the pound recovers to pre-Brexit levels. Therefore, it is imperative that the new government makes changes.
The most vital of all changes would be to introduce anti-dumping levies. When economic activity slowed down in China, manufacturers in the country responded by dumping their steel on the global market at prices far below their international competitors. For the US, it was a straightforward matter of increasing its pre-existing 266% tariff on cold-rolled Chinese steel to 522%. The US implemented the tariff rise in May 2016, leaving the EU to merely warn and caution China over dumping steel, but not take action. When the UK departs the EU, anti-dumping levies will be crucial for the steel industry.
SSC Laser Cutting is a forward-thinking company that understands the short-term advantages of a weakened pound, but is also aware that economic uncertainty can lead to over-cautious decisions. Fortunately, the firm is in a position where able to proceed with a £1m investment in a brand new tube laser after the referendum. Although the firm is still hitting record performance targets and pressing ahead with expansion, as a business, it must also need to protect the future of its workforce. Like many UK businesses, SSC Laser employs a number of skilled and dedicated workers from the EU. Consequently, the business will need to monitor new immigration legislation and try to keep these talented individuals within the company.
The firm makes the following predictions for the future of the Steel Industry:
1. UK introduces anti-dumping levies: Prime Minister Theresa May has appointed a number of pro-leave Conservatives to serve in her cabinet. These are the same politicians who spoke of taking back control, so SSC believes anti-dumping levies will be introduced to protect the UK steel industry from aggressive price-cutting.
2. Industry moves away from base products: UK manufacturers pay higher energy and labour costs than their international competitors and cannot compete on the price of base steel products. SSC expects British steel companies to start producing higher-end steel with larger profit margins. This will leave China, India and other nations to focus on the low-cost segment of the global marketplace.
3. Brand Britain re-emerges: So long as the UK is able to effectively negotiate new trade agreements within the global economy, there is the long-term potential for Britain to emerge as a rebuilt force. Despite causing insecurity, Brexit is now a reality and the country must use this as an opportunity to re-evaluate and improve wherever possible.