[Ferro-Alloys.com] The UK steel industry can expect a less severe outcome from the second lockdown planned for England from Nov. 5, even as numbers of COVID-19 cases in the country soar, according to market sources.

 

Steelworks will continue to operate, and construction and manufacturing sites will remain open. However, the closure of car showrooms could again impact automotive output, which was hard hit in the first lockdown earlier this year, sources said.

 

"Industry has not been shut down so there should be no impact on sales," said a spokesman for Tata Steel Europe, owner of the major Port Talbot steelworks in Wales. "The latest changes do not affect us directly as we were already working in the safest way possible."

 

The new lockdown is for England only, as Wales has already entered a two-week lockdown due to end Nov. 9, Northern Ireland is in a month-long lockdown due to end Nov. 13 and Scotland introduced a 5-tier COVID-19 Alert level system on Nov. 2.

 

UK steel companies "will continue to operate throughout this second lockdown as well while adhering to strict COVID-19 workplace guidelines," said Gareth Stace, director general, UK Steel, the UK steel sector association. "As in March, the steel industry stands ready to do all it can to support the Government in what it needs in tackling this public health crisis ... whether this is the provision of skilled individuals, adapting production lines or prioritising the supply of specialist materials."

 

The sector operated safely during the first lockdown, ensuring its 30,000 workers were protected, Stace said. The industry typically produces 7.3 million mt of steel a year, around 65% of the UK's annual requirement.

 

As the second lockdown is planned to last just one month -- as opposed to nearly three months from late March to mid-June in the initial lockdown to combat the COVID-19 pandemic -- consumers are expected to postpone their spending plans rather than cancel them, according to an analysis published by the Financial Times.

 

Pierre Veyret, technical analyst at London-based broker ActivTrades echoed this sentiment, noting in a Nov. 3 bulletin that the rebounds in equity markets seen in Europe during the week may be an anticipation of the conclusion of the US Presidential election. They "may also be the sign that investors, after having already anticipated the latest lockdowns measures in Europe, now have their eyes toward the end of the crisis, just like happened in late March. Last week's sell-off has made share prices much more attractive for an investor who is already pricing the recovery," Veyret said.

 

Still, the National Institute of Economic and Social Research on Nov. 2 revised down its Q4 estimates for UK economic growth and now sees a 10.5% GDP contraction for the year, with a recovery to Q4 2019 levels only in 2023, on the basis of the impact of COVID-19 coupled with the prospect of a no-deal Brexit.

 

End-consumers

 

UK prime minister Boris Johnson has announced that the construction industry -- the biggest steel consuming sector -- will remain in activity during the new lockdown. However, industry sources expect the closure of car showrooms and dealerships, classed as non-essential retail, will impact car manufacturing, typically the second-biggest steel consuming sector. UK car manufacturers' association SMMT said Nov. 2 it was seeking urgent clarification from the government on the closure of vehicle showrooms and other business activities.

 

A UK service center source said that as British construction and manufacturing industries were "continuing on," several of its customers were anticipating no change to their output or day-to-day business negotiations.

 

"The lockdown affects only non-essential retail business plus the hospitality sector – both of which we are not involved in. So, this lockdown is a lot less severe than the first. We are still in the same situation as we were last week. China is recording good growth, steel is short, prices are still increasing and we are still busy," the service center source confirmed.

 

End of Brexit transition

 

Still, the UK steel sector remains apprehensive, following what UK Steel noted to be a 22% plunge in domestic steel demand in first-half 2020 as a result of the pandemic.

 

"With a new lockdown, we fear that any modest recovery we have seen since June to go into reverse," the UK Steel director general said. "The Government must put its full weight behind major economic stimulus measures that will boost demand now and in 2021 and helps businesses put the misery of 2020 behind them ... In addition to the ongoing pandemic, we are also counting down until 31 December, when we leave the EU."

 

New trade challenges will come from exiting the Brexit transition period, he said.

 

Rob Dobson, director at London-based information provider IHS Markit, said that its latest Purchasing Managers' Index survey had shown UK manufacturing continuing to recover in October, but with the upturn losing momentum. This comes as the consumer goods sector fell back into contraction, amid ongoing lockdown measures, rising costs and signs that growth could weaken further in the coming months after Brexit-related stockpiling by EU clients, which had given only a temporary boost, Dobson said.

 

"The outlook for the remainder of the year has become increasingly uncertain, with risks tilted to the downside. While most companies maintain a positive outlook, with three-fifths of manufacturers expecting output to rise over the coming year, concerns about near-term risks posed by the pandemic, changes to COVID restrictions and related stimulus measures, plus Brexit anxieties, continue to fog the future," he said.

 

Source: S&P Global Platts