UK steel sector could see “renaissance” by exiting ETS: IKB

The UK steel industry could see a “renaissance” if it leaves the EU Emissions Trading System immediately after the country exits the European Union, according to Heinz-Juergen Buechner, managing director for industrials and automotive at IKB Deutsche Industriebank.

While there are several potential strategies for the UK steel industry in the case of a no-deal Brexit, leaving the ETS straight after the UK’s departure from the EU could reduce the cost of steel production in the country by Eur30/mt from 2021, Buechner said at the MBI Stahl Tag conference in Frankfurt on Wednesday.

Alongside cheaper pricing for domestic consumers, this would mainly serve as a strategy to be more competitive in export markets, especially as a disorderly Brexit would make it harder to sell steel to the EU27 countries outside the currently existing trade and tariff arrangements.

More than 75% of UK steel products were sold into the EU in 2018, mainly to Germany and France, underlining the dependency on EU customers for UK steelmakers, Bruechner said.

But if the UK reduces its cost base through an ETS exit, EU safeguards against such measures or an EU subsidization of steel exports to the UK to protect the EU27 steel industry are potential responses, Buechner said.

Exports to the US or other non-EU countries could also prove to be challenging for UK steelmakers in this scenario amid increasing competition from other producers like Turkey, and uncertainty around US Section 232 tariffs after the UK’s exit from the EU.

Similarly, no-deal Brexit strategies — such as greater investment in higher quality steel production or high import tariff barriers to protect UK mills from strong EU and non-EU steel inflows and stimulate the domestic steel industry — are also likely scenarios, but could draw retaliatory measures from EU steelmakers, Buechner said.

Amid continued uncertainty around trade agreements and steel trade flows in the face of a potential no-deal Brexit, UK crude steel production is likely to slump further to 6.8 million mt in 2019 and 2020, respectively, compared to 7.3 million mt in 2018, according to IKB estimates.

— Pascal Dick