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Boston, MA -- (SBWire) -- 01/03/2013 --BMI's UK Metals Report for Q4 2012 examines how British steelmakers are responding to a high cost, high risk environment in the short-term and the long-term challenges posed by a structural change in the global steel market with a great focus on quality and niche production over large volume continuous casting. The report also assesses prospects for growth in an increasingly volatile external market as well as domestic stagnation, but warns the chief challenge to competitiveness will remain the UK's high electricity prices, which are putting margins under pressure.

In the first seven months of 2012, British crude steel output fell 2.9% y-o-y to 5.63mn tonnes (mnt), one of the worst performances in the EU. This follows declines of 2.4% and 3.6% in 2011 and 2010, respectively, underlining the ongoing weakness of the steel industry as it struggles with a stagnant domestic economy and poor export performance. However, performance from May strengthened, due in large part to the restart in April of slab production at the Sahaviriya Steel Industries' (SSI) plant in Teesside.

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Production will be dragged down by continued weakness in domestic manufacturing. A sustained contraction in the construction industry going into 2013 represents a significant downside risk for British steelmaking. Austerity measures introduced by the new coalition government have compounded the uncertainties facing the construction industry with fears that reduced spending will depress steel demand.

Although a recovery is anticipated in 2013, production levels are still well down on the levels seen before the 2008 financial crisis, which led to a collapse in activity in the steel industry. Strong growth will come from a low base and the industry will not return to pre-2008 levels over the forecast period.

Over the last quarter BMI has revised the following forecasts/views:

- SSI's contribution to overall production has prompted BMI to revise its crude steel output growth forecast for 2012 from -3.0% to -1.5%.
- A stabilisation of the economy, restocking and plant restarts should lead the recovery in the British steel industry in 2013 when BMI forecasts output should increase 10% to 10.3mnt and domestic crude steel consumption rise 4.5% to 10.1mnt.

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