The latest extension has also averted the prospect of the UK having to leave the EU without a deal on Friday April 12.
A “no deal” Brexit would mean the UK would leave the EU, and all related agreements and bodies, without a transition period. No preferential tariffs would be in place for UK exports to anywhere in the world.
“For the second time in a matter of weeks, the UK came perilously close to a cliff edge ‘no deal’ Brexit, we are pleased that the EU has further delayed this disaster. It is now incumbent on all sides of the Brexit debate to ensure that we do not come that close again,” Gareth Stace, director of industry body UK Steel, told Fastmarkets on Friday.
“Any [type of] Brexit which limits free and frictionless trade is a bad Brexit for the steel sector, and until last night we were heading for just that. The UK steel industry sends 70% of our exports to Europe, so anything less than frictionless trade would be a step in the wrong direction,” Stace added.
European steel producers’ association Eurofer concurred following news of the extension being granted.
“The extension is a positive step and provides a bit more [regulatory] certainty for European steel producers, suppliers and end users for at least six months,” a Eurofer spokesman told Fastmarkets on Thursday.
“However, what matters most is that an agreement is reached and the extra time is used productively and that we don’t end up in a groundhog day-style nightmare where economic uncertainty rises because the UK political process cannot deliver despite the additional time given,” he added.
Uncertainty affecting market activity
UK market participants said that the prolonged uncertainty over what the future relationship between the UK and EU will resemble has already affected the market, amid logistics delays and reduced demand from both domestic customers and non-UK buyers.
“We’re finding it difficult to find space at UK ports right now so it is difficult logistically to complete deliveries to UK customers,” an EU long steel producer source said.
“Efforts to build safety stocks led to survey-record increases in inventories of both purchases and finished products [in the UK],” according the IHS Market/CIPS UK manufacturing PMI survey on April 1, which also noted “strikes and delays at the Calais Channel crossing, [and] a lack of freight availability.”
While UK steelmakers and manufacturers have been stocking up on raw materials and feedstock, some EU buyers have decided to switch away from UK steelmakers to alternative sources of steel within the EU.
“We are not buying from UK mills, because of the uncertainty
. We will buy somewhere else - it’s happening already,” a long steel distributor in mainland Europe said on Wednesday.
In addition, UK end-user demand from key steel-using sectors, such as the construction and automotive sectors, has softened amid the political uncertainty.
“The Brexit uncertainty has meant that a lot of [domestic] construction projects have been halted and there is no doubt nervousness from consumers in making big purchasing decisions,” one UK scrap trader told Fastmarkets.
“Therefore scrap flows have been negatively affected and they will continue to be affected until there is a clear picture of what the future holds,” he said.
While there are fewer building projects in the UK, there have also been fewer demolitions, meaning any drop in scrap demand from steel mills has been counteracted by less scrap availability into major processor yards.
The UK ferrous scrap price for deliveries in April has settled at values unmoved
from the month before, with HMS 1&2 material
stable at £140-165 ($183-216) per tonne as of April 11 in a subdued market.
The announcement of the extension is also likely to have an effect on currency exchange rates, which in turn will affect steel prices in the UK.
"Regarding the new Brexit deadline, we need to see how it will affect the local market. If sterling goes up [against the dollar], then exports will decrease and the local market will be forced to decrease [scrap] prices,” a second UK scrap trader said.
“If sterling doesn’t go up, then export demand will improve and local [scrap] prices will go up,” he added.
A weaker dollar makes exports more expensive for traditional buyers of scrap from the UK, who work in a market where trade is denominated in dollars.
Sterling has weakened in value against the dollar in recent weeks; it was trading at £1 to $1.3078 on April 12, compared with £1 to $1.325 on March 14, according to currency exchange site Oanda.com.
“Removing the risk of a ‘no deal’ Brexit on April 12 should support sterling temporarily,” Dean Turner, UK economist at UBS Global Wealth Management wrote in an April 11 briefing.
“We do not advocate taking directional views in sterling, as a [UK] general election would most likely keep sterling volatile and stuck near current levels,” he added.
The consensus amongst traders, producers and end users is clear – the political deadlock in the UK must be broken and a workable deal with the EU must be agreed to provide certainty to the steel market.
“The sooner a mutually agreed and nationally supported decision is taken, the better,” Brian Paterson, chairman of the international steel traders’ association (ISTA), said.
Declan Conway in Galway and Carrie Bone in London contributed to this report.