It's Friday! …which means it's time for another Sector Friday blog. This week it's the turn of “basic metals”, a sector which accounts for about 3% of UK manufacturing, but is a key supplier into a number of UK industries.
The sector covers the manufacture of iron and steel, non-ferrous metals and some basic metal products associated with the first stage of processing, such as castings, tubes, pipes and hollow profiles. Later-stage processing is not included in this sector, but in the “metal products” sector, which we'll blog about on another Friday.
- 3% of UK manufacturing
- The sector employs 72,000 people across 1,400 firms.
- The three largest export markets are Germany, the US and France
- Thailand has jumped from the UK's 40th largest export market in 2011 to the 6th in 2012, as the result of Thai company SSI's purchase of the Tesside plant to supply the Thai market.
Western Europe manufactures approximately 10% of the world's metal and the sector has long suffered from overcapacity. This overcapacity caused many of the plant closures and job losses seen in the last few decades, though the sector has also suffered more recently following the financial crisis and ensuing weak demand in Europe. In addition, the industry has suffered stiff competition from overseas, particularly from lower-cost producers.
However, in response to this the industry has undergone – and is likely to continue to undergo – consolidation, helping increase efficiencies and giving companies purchasing power. At the other end there is an increase in niche suppliers developing highly specialised metals. Growth in the sector is likely to come from producing higher grades of metals and increased collaboration with customers.
The key commodities are metal ores, coking coal, and electricity. Prices of all of these are highly subject to swings in global markets, and exchange rate fluctuations can also have a considerable impact on the sector. Iron ore prices are particularly driven by Chinese demand, as China produces around 40% of the world's steel, though this is mainly for domestic consumption.
Metals manufacture is energy intensive, so this is one of the sectors most affected by energy and environmental taxation.
Nearly 30% of basic metals' output is exported. The rest goes into intermediate consumption. Within this, the main customers are metal products; other transport (which includes aerospace); and mechanical equipment.
In the past decade basic metals exports increased 144%, despite falling 38% in 2009. Imports have risen by a similar amount, however, and the sector is usually in trade deficit.
Future challenges and opportunities
For aluminium manufacturers, growth opportunities may well come from recycling, since the metal is highly recyclable, and there is potential for growth through increased council collections of recyclables, especially non-can aluminium.
Input substitution is mixed news for metals manufacturers. For example automotive manufacturers are moving away from steel towards lighter metals like aluminium, but they are also looking at other materials such as carbon fibre and plastics.
Regulating carbon emissions under EU Emissions Trading Scheme, UK metals companies face strategic decisions on cutting their carbon emissions, investing in international emissions reduction projects or trading emissions.