ANALYSIS & OPINION
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Cheap steel hurts UK laser job shops

Greg Blackman assesses how UK laser sub-contractors are coping with rock-bottom steel prices

The announcement in January by Indian firm Tata, Britain's largest steel producer, that it is making more than 1,000 staff redundant from its UK sites, including 750 at its Port Talbot works, is the latest blow to hit the UK steel industry, which has been in decline now for a number of years.

Sheffield Forgemasters also announced it was cutting up to 100 jobs in January, while, last October, Tata made 1,200 of its staff redundant and, around the same time, the Thai firm SSI put its Redcar works on Teesside into liquidation with the loss of 2,200 jobs.

Blame for the failing UK steel sector has been attributed, in part, to cheap imported steel from China, although other factors like rising energy prices also add to the problem.

China is the world's largest manufacturer of steel, producing around 800 million tonnes in 2014, compared to the UK's 11 million tonnes, according to figures from the World Steel Association. China's slow economy has caused the market for steel in the country to crash meaning Chinese steel manufacturers are now exporting to the UK and Europe at low prices.

Laser job shops in the UK will be largely unaffected by the Port Talbot closures (car manufacturers are more likely to be impacted), at least in the short term, but the abundance of cheap Chinese steel is having a knock-on effect on the laser cutting sub-contractor business, because job shops are not getting any return on scrap metal.

'The biggest problem that we have in laser cutting is the cost of the raw material, which translates to the cost of the scrap that we weigh in,' commented Dean Cockayne, operations director at Midtherm Laser in Dudley and chairman of the UK Association of Laser Users’ (AILU) Job Shop special interest group. 'That section of the business is at an all-time low at the moment.'

Cockayne said the low cost of steel at the moment is reducing profits and turnover, as well as the value of scrap metal.

Laser cutting sub-contractors like Midtherm Laser will price a job based on the laser cutting and the price of the steel with a mark-up – Cockayne quotes around 12 per cent. Twelve per cent of material that used to cost more than £500 a tonne meant a good profit; now that steel is down by at least £100 per tonne, ‘12 per cent of that is hardly worth having’, Cockayne said.

In addition, any scrap metal is not worth very much. Cockayne commented: 'Although we've got a bit of a downturn in business anyway because of the time of year, it's also compounded by the fact that we're not making the same amount on the material and we're not getting paid the same amount for the scrap we produce.'

Cockayne feels that the price of steel has hit rock bottom and that it should start to increase during the second quarter of this year. 'The cost is extremely low at the moment,' he said. 'It's the cheapest it's ever been... I can't see it going any cheaper.'

This is partly because, in Cockayne's opinion, the Chinese are not purchasing the scrap metal to recycle it, because the country has a surplus. This means the scrap is stockpiled causing the price to fall.

Laser job shop customers are happy because the material is so cheap, which means work doesn't cost as much. However, Cockayne feels the market will eventually start to level out and trade more as it should, which will be better for job shops and other small sub-contractor manufacturing firms.

Cockayne commented that the partial closure of the Tata steelworks in Port Talbot won't have a big effect on UK laser job shops in the short term, but might have an impact in years to come. 'With all these little things happening along the line, in the future it's going to cause some issues,' he said.

Some of Cockayne's customers specify in the job order where Midtherm Laser sources its material from. 'If they close down a British mill completely and stop producing, then it limits us to where we can buy non-Chinese material from,' he said.

The hope now, both for the world steel market and for small UK firms that buy the material, is that the price of steel will rise to a level where businesses can trade competitively.

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