Structural Steelwork Trade and Supply

17/12/2018

Category: General

Recent trade actions have had no effect on the availability or supply of structural steelwork to the UK construction sector, nor on UK raw steel prices.

International trade has shot into the headlines recently with Brexit negotiations at a critical stage and the US/China in a 'trade war'. The problem is that many of the articles on what this might mean for the steel sector conflate the issues and some have come to erroneous conclusions.  This article sets out the facts clearly for structural steelwork.

Materials Cost Inflation:  There is a broad range of factors that drive raw steel prices including exchange rates, raw material inputs including iron ore, coking coal and scrap, as well as electricity pricing. Combined with overall supply and demand, no one factor is dominant.  It is also important to remember that for a typical building, the cost of the raw steel only represents 4% of the total building cost.

Trade Flows:  The UK's supply of raw steel for steel-framed buildings and structures comes largely from the UK (45% - 50%) and Europe (45%). The remaining 5% - 10% comes from outside the EU. The UK imports no structural sections from China.

Trade and Safeguarding:  There has been a number of trade actions taken by the UK and the EU recently.

US tariffs on imported steel:  In March 2018, the US imposed a 25% tariff on imported raw steel from a number of countries, but not the EU.  This 25% tariff was extended to raw steel imports from the EU in June 2018.  The EU imposed retaliatory tariffs on a range of US products, including steel, later that June.  While domestic steel prices in the US have increased, this has had no effect on UK raw steel prices.

China - US trade:  In August, the US imposed additional tariffs against Chinese imports.  As raw steel had been covered by the previous US action, this has had no effect on UK raw steel prices.

EU safeguarding:  These actions raised concerns among EU steelmakers about a flood of low priced exports from China into the EU.  To prevent this, the European Commission imposed safeguarding tariff quotas on imports of steel products.  These tariff quotas:

• are provisional and apply initially for up to a maximum of 200 days starting on 19 July 2018
• cover 23 steel product categories
• are based on the average of the annual level of imports in the years 2015, 2016 and 2017 (they are pro-rataed for the 200 days)
• are set for the product categories regardless of country of origin

At 70% through the 200-day period, only 38% of the quota for structural columns and beams had been taken up.  To date, this action has had no effect on UK sections' prices and it is not expected to.

Brexit:  BCSA has undertaken a detailed analysis of the risk of a no-deal Brexit to the UK's structural steelwork sector.  The conclusion of this analysis is that a no-deal Brexit poses no risk to the structural steelwork supply.

The key factors show that:

• 98% of the UK's structural steelwork is fabricated in the UK, which means a no-deal Brexit poses no risk to structural steelwork supply.
• the risk to the availability and delivery of hot rolled structural sections is low.  This is largely due to a joined-up supply chain that includes a UK producer, European producers, and a well-established network of distributors and stockholders who hold sufficient levels of stock to support just-in-time deliveries to steelwork contractors.
• there is very little risk to labour availability.  An average of 7% of employees working for UK steelwork contractors are from the EU.  These employees are full-time, permanent employees working in factories.
• Plant and equipment are a high value, long-term purchase.  Machinery supplies are expected to be unaffected by a no-deal Brexit.
• structural fasteners and bolts used by steelwork contractors in the UK are sourced globally, and UK suppliers already have to hold a sufficient stock of product in the UK warehouses.  The risk to supply is low.
• possible currency fluctuations would impact on both input and output pricing, but this is only one of many factors that has an impact on steel pricing models.

The full risk analysis can be viewed by clicking the link below: Brexit Risk Analysis for Structural Steelwork Oct18

Conclusion: The recent trade actions that have taken place have had no effect on the availability or supply of structural steelwork to the UK construction sector, nor on UK raw steel prices.

While the construction sector has seen ongoing material price inflation across the board, this has been driven by a much broader range of factors.

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