Thursday 05 June 2025 - Thought Leadership

UK Metals Sector Report

By Tom Bryant

Summary

UK steel production continued to contract in 2024 and prices fell to the lowest levels since 2020; a modest price recovery has started in early 2025 however.
Despite some moderation, high energy prices continue to weigh on companies’ cost base.
The last-minute nationalisation of British Steel’s plant in Scunthorpe in April highlighted the sector’s profitability problems again.
Production figures in the wider UK manufacturing sector continue to fall and forward-looking indicators leave little room to be optimistic for steel demand in H2 2025.
A trade deal with the US will keep steel exports tariff free while UK-made cars will face a 10% tariff going forward, lower than initially feared.
A new agreement with the EU aligns emission trading schemes, thereby keeping steel exports to the EU levy-free (but also increasing the price for emissions in the UK).
Insolvency risk fell in 2024 but higher national insurance contributions and poor macroeconomic conditions cloud the 2025-outlook.

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Key trends in 2024

Operating conditions in the UK metals sector remained challenging in 2024 as demand struggled amidst micro- and macroeconomic challenges.

Metal producers

As Tata Steel closed its blast furnace in Port Talbot in September, crude steel production in the UK fell for the third consecutive year in 2024. According to data from the World Steel Association, output contracted by a sizable 29% last year (to below 4m tonnes), on top of 17% and 6% drops in 2022 and 2023, respectively[1]. The country’s importance for global steel production has diminished further with the UK now being the 36^th largest steel producer (between Sweden and Slovakia), down from 26^th in 2023.

Source: World Steel Association

In Q4 2024, steel prices had hit the lowest reading since late 2020. Positively for steel producers, prices increased somewhat in Q1 2025 and further improvements were recorded in April when European steel prices averaged USD721 per metric tonne [2], up from USD594 in Q4 2024. Notably, heavy sections and beams fared less well as steel frame building demand is down.

Source: www.focus-economics.com

Despite the generally improving trend, prices are still down against 2023 readings however and with the global manufacturing outlook being clouded (see chapter below), downward pressures on steel prices are likely to be persistent. At the same time, excess supply in global steel production will also keep prices in check. According to EUROFER, the European Steel Association, overcapacity exceeded 560m tonnes last year, four times the EU’s annual steel output. Further capacity increases in 2025-26 are likely, thereby putting additional downward pressures on prices[3]. While changes to UK import quotas are being implemented to protect the UK from steel dumping it remains to be seen whether these protections are adequate to solve the concerns of both the domestic producers and importers.

With energy costs accounting for 20%-40% of total steel production costs, the price shock following the start of the Russia-Ukraine war in 2022 had a negative effect on companies’ cost base. Also problematically, the UK has the highest industrial electricity costs in the G7; prices stand 46% above the International Energy Agency’s median as British power plants often run on natural gas[4]

Source: ONS

Positively in this light, energy prices continued to moderate in 2024, a trend that had already started in 2023. Unfortunately, despite the moderation, prices are still far above their pre-war readings. Compared against Q4 2021, industrial electricity and gas prices are up by 46% and 32%, respectively[5]. Encouragingly, the UK government is likely to address the sector’s high energy costs in its industrial strategy announcement, due in mid-2025[6].

Also positively, producer price inflation (PPI) in the sector has been modest in recent months, highlighting a more manageable cost base in the industry. According to data from the Office for National Statistics (ONS), the “metals and non-metallic mineral products” sub-sector has seen input PPI of 0.8% y/y in December 2024, followed by 0.7% in January 2025. However, this is still above the national average of -1.3% y/y in December and 0.1% in January.

Meanwhile, output PPI (also called factory gate PPI) is equally modest: the “metals and machinery” sub-component increased by 1.3% y/y in December and by 1.2% in January, above the UK average of 0.3% y/y and 0.1%, respectively.

End Users

Unfortunately, UK manufacturing continues to struggle. In a y/y three-month moving average comparison, manufacturing output has been falling in seven out of the past eight months. Latest available ONS data shows a 0.4% y/y drop in the three months up to February 2025, on top of a 0.6% drop in January and a 0.2% contraction in December 2024 [7].

Source: ONS

Looking at the metals-related sub-sectors in more detail, the situation does not improve much. Production in the “basic metals and metal products” sector has been falling between November 2024 and February 2025 with the pace of contraction accelerating from -0.5% y/y in November to -5.2% in February. “Transport equipment” is following a similar pattern; the latest available data point for February shows a 6.0% y/y contraction. Meanwhile, “machinery” output has been growing in the first two months of 2025, thereby ending fourteen months of contraction between November 2023 and December 2024.

Purchasing Managers’ Index (PMI) data for the UK construction and manufacturing sectors also do not leave a lot of room for optimism. In the construction sector, an important customer of metal products, the PMI remained below the neutral 50-points line (which divides expansion in sectoral activity from contraction) in April, coming in at 46.6 points. New order inflow fell by the second-fastest pace since May 2020, indicating more problems for the sector in the next months[8].

Source: S&P Global, range: 0 (pessimism) to 100 (optimism), neutral reading: 50 points

In the manufacturing sector, the PMI has quickly fallen from its 26-month high in August 2024 (52.5 points) to 44.9 points in March 2025 before recovering marginally in April (45.4 points)[9]. Similar to developments in other European markets, the prospect of a trade war with the US (see chapter below) has dented confidence in Q1 2025. As in the construction sector, UK manufacturing is suffering from weak new order inflow (negative for the seventh month in a row) and new export orders have fallen by the fastest rate in five years. Business optimism regarding the twelve months ahead has dropped to the worst reading in 29 months, making any imminent increase in demand for metal products unlikely.

2025 Outlook

The sectoral outlook for the remainder of 2025 is mixed. The last-minute nationalisation of British Steel’s Scunthorpe steel plant in April highlights the ongoing problems steel-making in the UK is facing: high energy costs, the need to reduce the industry’s high carbon footprint and generally low demand for its products pose persistent challenges[10] . Macroeconomic conditions have deteriorated in the first half of 2025 and comparatively high interest rates will continue to weigh on credit risk. Positively, the prospect of a UK-US trade war has subsided, following an agreement between the two governments in May.

Macroeconomics

Problematically, economic headwinds are substantial, highlighted by poor business and consumer confidence readings and disappointing high frequency data such as retail sales or industrial production figures. Higher national insurance contributions and the increased minimum wage (measures announced in the Autumn Budget in late 2024) will also have a negative impact on the UK’s economic performance.

As a consequence, the IMF has downgraded the UK’ s 2025 real GDP growth forecast in its latest World Economic Outlook (WEO), released in April. Out of all major European economies, the UK has seen the biggest downward revision: from 1.6% in January to now 1.1%. That said, the country is still expected to grow faster than Germany, France and Italy (which have also seen downward adjustments since the last World Economic Outlook publication in January)[11].

Politics and Regulatory Environment

Positively, the UK government has agreed on trade deals with several international partners in recent weeks, thereby improving growth prospects for the country as well as the metals sector. On 6 May, a trade deal with India (which had been under negotiation for several years) has been agreed on. For the UK metals sector, this is promising as India will lower its tariffs on higher value cars from 100% to 10% while also cutting import duties on aerospace and electrical devices over the next years[12].

Furthermore, the UK and the US governments have also finalised a trade deal in May which will keep UK steel and aluminium exports to the US tariff free (instead of facing a 25% tariff). Additionally, tariffs on UK car exports to the US were reduced from 27.5% to 10%[13]. While this is good news for the struggling UK automotive and steel sectors, the deal is not legally binding yet and also currently lacks key details (the agreement is only 5 pages long). Given the sometimes erratic style of policy making in the US, it remains to be seen how beneficial the trade deal will ultimately be.

Meanwhile, the EU and the UK completed talks about closer economic cooperation on 19 May. Most notably for the metals sector, both sides agreed on linking their respective emissions trading schemes (which had been disjointed since Brexit)[14]. While this means that the UK will be exempted from the EU’s Carbon Border Adjustment Mechanism (CBAM), due to come in on 1 January 2026, it will also create upward pressure on emission prices in the UK as they are currently below EU-levels[15].

Additionally, the UK government continues to work on its steel strategy. After having come into office in mid-2024, the Labour administration had already earmarked GBP2.5bn for the sector, on top of GBP500m support for Tata Steel’s new electric arc furnace (EAF) in Port Talbot. The nationalisation of British Steel’s Scunthorpe plant will also require additional resources, thereby putting a further strain on already stretched public finances. Maintaining a certain degree of strategic independence from the China-dominated global steel market and making production greener (via EAF or investing in hydrogen-based steel making) are likely to remain key priorities for the UK government going forward. However, even if companies’ potential access to the newly created National Wealth Fund (GBP5.8bn) is taken into account, the budget currently set aside to achieve these targets is certainly too small to fund all of the sector’s needs.

Also problematically, the domestic automotive sector continues to struggle. Production has more than halved over the past six years and is now on the lowest level since 1954. 2024 saw another 11.8% fall in vehicle output, according to data from the Society of Motor Manufacturers and Traders (SMMT)[13]. Worryingly, production figures fell further in Q1 2025 (-3.2% y/y) and for the year as a whole, the SMMT[16] forecasts a 7.9% output drop to 830k units.

Positively, the trade deal with the US could provide some momentum for the heavily export-orientated sector (almost 80% of all cars produced in the UK are shipped abroad). After the EU, the US is the country’s second most important car export market, taking around 17% of total exports in 2024. Also encouragingly, the US was the only major market that already saw growth last year: while car shipments to the EU and China (the third biggest export destination) fell by 24.3% and 21.8%, respectively, exports to the US increased by a sizable 38.5%[17]. That said, over the medium to long run, the shift from internal combustion engine vehicles to electric cars and stronger competition from Chinese car producers on global markets are likely to intensify pressures on the British automotive industry, despite the recent trade deal.

Business failures

After having peaked on a 30-year high in 2023, business failures in England and Wales have fallen by 5% in 2024, according to data from the government’s Insolvency Service[18]. That said, despite last year’s improvement, figures are still significantly above the pre-Covid readings: 23,880 business failures in 2024 against 17,170 in 2019. Encouragingly, 2025 is off to a good start as the number of registered company insolvencies in England and Wales fell by another 2% y/y in January-February.

Source: Insolvency Service

In the metals sector, the number of business failures has also developed favourably in 2024. In “manufacture of basic metals” and “machinery”, figures dropped by 41% and 3%, respectively. That said, “manufacture of fabricated metal products” and the car industry saw increases (by 1% and 7%, respectively). The construction sector, which is closely connected to the metal industry reported an 8% contraction in 2024, following increases in 2021-23.

Also positively, sectoral business failure risk is low in absolute terms: manufacturing of basic metals (24 failures in 2024), fabricated metal products (268), machinery and equipment (72) and the automotive industry (44) account for a very small fraction of total business failures in England and Wales (23,880). At the same time, some exposure risks exist via construction (which saw 4,038 failures last year, the riskiest sector out of all 22 industries covered).

Problematically, the insolvency outlook is relatively gloomy. Weak macroeconomic growth, distorted global trade flows, tight bank lending conditions, still above-average interest rates and higher national insurance contributions in the UK all have the potential to increase the number of business failures further. Long-term business planning is also complicated by the immense level of global economic policy uncertainty, a trend unlikely to disappear anytime soon.

[2] https://www.focus-economics.com/commodities/base-metals/steel-europe/

[3] https://mepsinternational.com/gb/en/news/overcapacity-will-continue-to-weigh-on-steel-industry

[4] https://www.energy-uk.org.uk/publications/reducing-non-domestic-electricity-policy-costs-to-drive-economic-growth/

[5] https://www.gov.uk/government/statistical-data-sets/gas-and-electricity-prices-in-the-non-domestic-sector

[6] https://www.ft.com/content/7c49ea15-cf40-42ef-a44c-07adf7dd74a0

[7]

[8] https://www.pmi.spglobal.com/Public/Home/PressRelease/ebae5b2d9d3b488aba65e4bc55c7f731

[9] https://www.pmi.spglobal.com/Public/Home/PressRelease/3b89bea76b1443a2bd2db793c2672957

[10] https://www.bbc.com/news/articles/c5y66y40kgpo

[11] https://www.reuters.com/sustainability/sustainable-finance-reporting/imf-chops-uk-growth-forecast-trump-tariffs-hit-global-economy-2025-04-22/#:~:text=Britain%20remains%20on%20course%20to,for%20any%20of%20the%20others.

[12] https://www.bbc.com/news/articles/c5y6y90e5vzo

[13] https://www.gov.uk/government/news/landmark-economic-deal-with-united-states-saves-thousands-of-jobs-for-british-car-makers-and-steel-industry?utm_medium=email&utm_campaign=govuk-notifications-topic&utm_source=2ea9b5a6-bfbb-4a68-8cff-8a6ec6f1080d&utm_content=daily