Home Features Spotlight on steel: Riding the wave of cresting metal prices

Spotlight on steel: Riding the wave of cresting metal prices

Spotlight on steel: Riding the wave of cresting metal prices

By Sandra Dick

FOR generations, British steel came with a stamp of quality: home-made in huge quantities, it built bridges, ships, buildings and millions of cars.

British technology made steel production cheap, fuelling the Industrial Revolution and propelling the nation to become a world leader in steel production.

Fast forward to now and the story could scarcely be more different.

Steel may not quite be worth its weight in gold but for some manufacturers who rely on it, it may as well be.

Already in short supply due to the pandemic, the Russian invasion of Ukraine plunged the two steel-producing nations and supply chains into turmoil.

In March, British Steel warned it was increasing its prices for all new orders of structural sections – used in building and bridge construction – by about 25%, bumping up the price by £250 per tonne to around £1,250 overnight.

Similar increases have been felt by steel customers right across the board, wherever they source their steel and for whatever reason, just as energy and fuel prices skyrocket.

It’s being particularly felt by skip and container manufacturers who face an uncomfortable choice: push up prices to reflect soaring steel prices or hold on and hope the situation stabilises.

Meanwhile, waste operators have the dilemma: invest in new skips and containers now, or hang fire.

Why is steel so expensive?
“The UK does not manufacture enough steel to meet its manufacturing demands; we rely heavily on steel production from Belgium, Turkey, Russia, Ukraine, India, South Korea and China, to name a few countries that supply large tonnages to the UK market,” explains Ross Simons, Managing Director of Lancashire-based Samson Containers.

He says a “perfect storm” has pushed up prices.

“Covid disrupted worldwide production creating a shortage of material which, in turn, started to slowly push up the price.

“Then we have the energy crisis and the Russian invasion of Ukraine. It takes huge amounts of energy to manufacture steel, and the world has been too reliant for too long on cheap Russian energy.

“Russia and Ukraine are huge producers of steel, and Ukraine is one of the largest world producers of iron ore needed to manufacture it.

“Sanctions mean Russian steel and energy are not a future option to purchase, and Ukraine is not manufacturing any steel or mining any iron ore,” he continues.

The most recent UK Parliament research shows that in 2019, the UK produced seven million tonnes of steel while China churned out 996 million tonnes.

The EU, which the UK was still a member of at the time, produced 157 million tonnes, just 8% of the world total. Within Europe, UK production sat at eighth, behind Germany, Italy, France, Spain, Poland, Belgium and Austria.

Brexit has had an impact too. “The UK cannot import lots of additional steel from other countries due to quotas as a direct result of leaving the EU, and the steel then attracting tariffs which makes the steel uneconomical to import,” explains Ross.

What is the impact?
At businesses like Samson Containers, which produces skips and containers to high Container Handling Equipment Manufacturers Association (CHEM) standards, the situation is challenging.

“I’ve gone from spending £1m on steel in my 2019/20 financial year to spending £2m on steel in 2021/22,” he says.

“We reach our credit limits much quicker and, as a result, our cashflow is now much more challenged than it ever was.”

Customers, facing higher prices for skips and containers, are now hesitating to buy.

“Most waste and recycling businesses have budgets for replenishment every year, but we’ve noticed some regular spenders haven’t spent for two years.

“To help, Samson Containers are buying steel plate at least 25% cheaper than the market value. Whilst this does not bring the price of a skip down by 25%, I believe our container pricing is as competitive as anything in the marketplace.”

At Middlesex-based Skyways Skips, director Sab Johal has seen steel prices leap from £360 per tonne last year to around £1,000 per tonne.

“It’s like a bidding war as everyone tries to get their hands on steel,” Sab added. “It’s pot luck if you get it or not, and every time I contact my steel suppliers, the price has gone up again.

“Last year we were very busy with orders; this year we’re not.

“Customers are saying the whole situation – prices, the cost of energy and the removal of entitlement to use red diesel – is having a huge impact.

“One that I’ve had for more than 20 years has had enough and is packing up the business.”

Where will it end?
There’s not much hope for a speedy resolution.

“It’s a relatively safe bet that steel will continue to be in short supply and high demand over the next few years. It is not going to suddenly drop in price,” Ross warns.

When sectors such as the car industry are back up to full speed as the pandemic recedes, demand for steel will rise, pushing prices up again.

Meanwhile, the on-going Ukraine conflict and the potential return of an Iron Curtain is likely to influence energy, steel supply and iron ore supply for some time.

“I personally cannot see the price of steel going down anytime in the next five years,” says Ross.

So… buy now, or wait?
“My advice would be if your business needs capital equipment to service your customers or to meet demand, then buy what you need,” adds Ross.

“It’s not a sound strategy to allow your business to shrink or provide an inferior or unsafe product just because you don’t like the pricing out there.”

Switching suppliers in search of the lowest price may backfire in the long run.

“Quality containers, made well using the right steel grade and gauge will last longer,” he continues. “It’s not always ‘just’ price that matters: service and quality are also vital components when it comes to investing in new kit.

“My advice would be to remain loyal to your supply chain in a volatile market, because you’re more likely to enjoy better service and competitive pricing long term.”

Second hand options might not be the best approach either. Sab points out the price hike and rising demand has pushed up prices there, too.

“A second-hand skip is almost the same price as a new one – so you’re probably as well buying new.”

Call for action
Support for businesses hit by diesel costs and energy bills would help, says Sab.

Ross adds: “We need trade deals that support the importation of enough steel to meet UK demand, and Covid to be well under control worldwide.

“We need the conflict in Ukraine to stop, and then Ukraine needs time to rebuild. And we need alternative energy sources in the UK to control energy costs.

“I genuinely think manufacturing could be at the heart of our government’s long-term strategy to make Great Britain great again, which would drive employment and the economy, solve the energy crisis and also make the UK more self-sufficient.”

Perhaps the good old days of British-made steel plants delivering the material needed to build the nation may not be over after all.

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