Tariffs and the uncertain future of British Steel have previously tarnished business sentiment, but recent developments offer new opportunities for the metals sector and its dependents to shine.
The UK Government's swift action to support domestic virgin steel production, including emergency legislation and a new trade deal with the US, has been crucial in keeping the country's last blast furnaces operational. The new trade deal, which eliminates the 25% tariffs on UK steel and aluminium exports up until a quota, has supported thousands of jobs and provided a much-needed boost to the sector.
However, though this trade deal offers relief securing the long-term future of the UK steel industry requires more substantial action. In this snapshot, we'll explore the threats to UK steel manufacturing, potential saving factors, and implications for the broader metals sector in the UK.
Meltdown
The UK steel industrywas born during the Industrial Revolution when Henry Bessemer discovered an affordable way to mass produce steel in quantities needed for construction, transport, and manufacturing both in Britain and worldwide.
Today, 1,145 UK businesses operate in the steel sector, supporting thousands of jobs, according to a House of Commons Research Briefing. The UK Government considers the UK steel industry a critical industry. However, domestic production has fallen dramatically from its 1970s peak: between 1990 and 2024, its contribution to the UK economy decreased from 0.3% of total output to just 0.1%.This decline is reflected in production volumes as well, according to worldsteel data from 2023, France produces twice as much steel as the UK, while Germany produces more than five times the UK's output. UK-manufactured steel now meets only 30-40% of domestic demand, and exports fell by £0.6 billion in 2024, resulting in a £2.6 billion trade deficit in steel last year.
After several challenging years of higher energy costs, falling production, and declining prices, Tata Steel decided to close its Port Talbot blast furnaces in July 2024. Leaving the only one remaining British Steel site in Scunthorpe producing virgin steel. When that facility was also threatened with closure by its owners, Jingye, the Government was compelled to intervene, taking direct control of operations after MPs passed emergency legislation on 12th April. This action stopped short of nationalisation but ensured the company could order necessary raw materials to maintain operations and prevented planned redundancies. The Government had already allocated £2.5 billion to support the steel industry over the next five years and negotiated a deal with the US Government to remove 25% steel export tariffs for manufacturers. Additionally, the UK-US trade arrangement includes significant tariff reductions on steel and aluminium, reducing tariffs to mostly 0% up to a certain quota. This reduction can benefit the metals sector by lowering costs and enhancing competitiveness, providing a much-needed boost to the industry
Coface risk assessment
Following the UK Government's intervention, the furnaces continue to operate, but the future remains uncertain against a backdrop of significant trading risks in the steel sector.
These include:
Economic viability: Blast furnace operations are economically unsustainable due to high labour, input, and energy costs, which remain above 2019 levels—coal prices, for example, are around 25% higher. Both Tata Steel UK and British Steel reported losses in the millions in their 2023 financial reports, while steelmakers using electric furnaces have generally achieved small operating profits. The challenge for the Government is that only blast furnaces can produce the stronger virgin steel needed for applications such as defence and its planned house-building program.
Political risks: While the Government aims to attract potential buyers for British Steel, the economics of steel production suggest this would require a subsidised venture, and private sector interest in blast furnace production remains uncertain. Nationalisation likely represents the most viable option to preserve jobs and safeguard the UK’s steel industry’s virgin steelmaking, but operating a loss-making venture at taxpayers' expense carries political risks. Meanwhile, the Government maintains that additional borrowing won't be necessary and that its fiscal rules are non-negotiable.
Tariffs: The 25% tariffs that President Trump imposed on steel and aluminium in March had the potential to hit the already weakened sector. The US purchases 7.4% of UK steel exports, and the imposition of similar tariffs in 2018 led to a 3.5% decline in metal exports to the US, while metal producers' turnover fell by 4.3% in the following 12 months. Even though the UK is no longer facing the doomsday scenario the IMF has still warned that the tariffs have inflicted a "major negative shock" on the global economy, including the UK. Consequently, businesses holding stock will see a decrease in its value, potentially hampering their ability to trade. Tariffs against China will likely worsen the problem of "steel dumping" in EU and UK markets, further challenging domestic producers.
Geopolitical risks: Failure to reach an agreement with Jingye over British Steel prompted politicians to express concerns about Chinese ownership in critical sectors, eliciting a strong response from the Chinese embassy. Antagonising a potential investor in the steel sector could backfire during a period of uncertain trading relationships with the US and EU.
What does this mean for UK businesses?
The toxic combination of uncertainty, rising costs, and cheap competition has negatively affected sentiment in the metals sector, with insolvencies increasing by 24% year-on-year in the first quarter of 2025, far higher than the smaller uptick in overall insolvencies. This poses a risk for companies which trade with the sector, including the potential for supply chain disruption and additional costs for those in the construction, manufacture and automotive industries.
This volatile environment makes monitoring the financial health of business partners and suppliers more crucial than ever. Coface Business Information services can provide vital intelligence to help manage these risks effectively.
The UK Government's commitment to domestic steel production, coupled with planned infrastructure projects and increased defence spending, offers hope for the recovery of UK steel companies and the broader business community that relies on them. Recent trade agreements with the US and India aim to reduce trade uncertainty and improve business sentiment, stimulating investment and economic activity. This could benefit the metals sector through increased demand and stability. Additionally, the UK-US trade deal has significantly reduced tariffs on steel and aluminium, previously at 25%, supporting thousands of jobs in the UK steel industry and indicating some positive prospects for the sector's stability and future growth.
There's also a growing demand for companies offering innovative, greener approaches to steel manufacturing, including using electric furnaces to recycle scrap metals, given the imperative to transition to Net Zero by 2050. For example, new electric arc furnaces could provide opportunities for scrap metal traders and specialists in renewable energy such as offshore wind. A revitalised and competitive steel industry would also have a positive economic impact, encouraging investment, creating skilled jobs and boosting confidence. Companies investing in these technologies should carefully assess both the opportunities and risks of this emerging market segment.
At the other end of the spectrum, precious and semi-precious metals are currently in high demand globally. Generally regarded as safe havens during periods of trade volatility, gold prices has reached record highs in recent months, surpassing $3,500 an ounce on 23rd April 2025. While not a major producer, Britain holds one of the world's largest gold reserves, and London serves as a global centre for gold trading.
Significant interdependence exists between the metals sector and the green energy sector, which relies on lithium, copper, and nickel for components such as batteries and turbines. Much of this must be imported from countries like Chile and China, but companies are now exploring the potential for extracting lithium from UK sites.
As with Henry Bessemer during the first industrial revolution, a successful and innovative metals sector could transform the prospects for the UK's green industries.In this rapidly evolving landscape, businesses that combine strategic foresight with robust risk management will be best positioned to thrive. Regular monitoring of business partners with tools like Coface Business Information services can help companies navigate these challenges with confidence.
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