Following the result of last week’s referendum – the decision for the United Kingdom to leave the European Union – questions arise concerning how the stainless steel market will be affected, both in the UK and elsewhere.
The LME nickel price, along with many other commodity values, slipped in the immediate aftermath of the vote but this is unlikely to represent anything other than a short-term reaction. The same cannot be said for the UK currency. The value of the pound Sterling, relative to other major currencies, has recovered, a little, since its steep drop in the first two days following the vote. However, in the medium term, the pound is likely to remain weaker than its pre-referendum position.
For stainless steel production in the UK, this would result in increased raw material and other input costs, as many of these are commodities which are, largely, traded in US dollars. Conversely, lower labour costs, in euro terms, would help to make British exports more attractive to European buyers.
The key element in determining the UK’s future role in the market will be the trade agreement that the exiting nation strikes with the EU. Without allowing free movement of labour, the electorate’s dislike of which appears to have been a major factor in the referendum result, it would be difficult for the UK to secure tariff-free trade with the single market.
Firstly, tariffs would make British-made stainless steel and other manufactured goods more expensive to European buyers, although, as stated above, a weaker pound will counteract this, somewhat. Secondly, inward investment would be affected. Multinational producers are less likely to invest in the UK if it does not provide free access to the EU market.
This poses a specific threat to UK stainless steel production. Finnish-owned Outokumpu operates the UK’s only dedicated large-scale primary stainless steelmaking facilities. The position of these works, within the group, would be weakened. While Brexit would free the UK from rules preventing state intervention to support domestic industry, it is unlikely that a future British government would act, in the event of any closure.
Whereas the EU moved to protect local stainless steel producers by imposing antidumping duties on Chinese and Taiwanese material, the UK may, with no domestically-owned producer, perceive greater advantage in cheaper imports. Furthermore, in its new situation, it could seek to develop stronger links with China and other growing global powers.