The metal products sub-sector is one of the largest in UK manufacturing, accounting for around 10% of total manufacturing output. Key metal products include the treatment and coating of metals such as plating, machining including grinding, and structural frameworks for buildings.
Metal products have fared well
The sub-sector has recently performed better than manufacturing as a whole. The output of metal products grew more than 2% in 2015, while manufacturing contracted slightly. This wasn’t a one-off as the sub-sector’s growth was stronger than manufacturing for the fourth time in five years. Also, metal products got off to a good start in 2016 as it was one of the few sub-sectors to see gains in the first quarter.
So why have metal products held up while most other manufacturing sub-sectors have struggled? A key reason is that more than two-thirds of metal products are used as inputs by a broad range of sectors. On top of this, the demand by sector is fairly evenly spread. Such diversification has helped cushion the recent weakness of demand from manufacturers embedded in the oil and gas supply chain such as mechanical equipment, and construction. The recent weakness of construction has been largely driven by infrastructure.
Also, metal products have fared well because the majority go to the domestic market. The recent strength of the UK economy, led by private consumption, has supported demand from households for utensils such as cutlery, tools and hardware. Even though only 11% of metal products are exports, the ongoing economic recovery of the eurozone – the destination for around half of the UK’s metal products exports – has helped demand. Also, the profit margins of manufacturers of metal products have benefited from the lower cost of key inputs such as steel.
The outlook is favourable
The metal products sub-sector is likely to see respectable growth once again this year as demand from key sectors remains firm or picks up. The order books of aerospace are still healthy, suggesting the sector will continue to require metal products. Similarly, demand for construction-related metal products should improve as the government’s plans to ramp up road building get underway. Also, demand from manufacturers embedded in the oil and gas supply chain is likely to pick up a little as they diversify their activities following the collapse in the oil price.
Later this week we take a look at recent developments with manufacturing exports, while next week the spotlight will be on the non-metallic minerals sub-sector.