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November/December 2012 – Steel still the competitive choice

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Hopefully, October’s report of an unexpected continued fall in UK economic output will be looked back on as the nadir of this great credit crunch related recession. Things should start getting better from around about here, economists seem to agree, and all industrial sectors are hoping for better things for 2010.

The construction sector however looks like lagging behind others as it usually does when we come out of recession, and there are genuine fears that the economic turnaround will come too late for some. Steelwork contractors have been under sustained pressure during 2009 and see little immediate cause for cheer going into 2010. During the last recession some 25% of steelwork contractors were driven out of business by the collapse in orders and margins. Are we going to see that happen again?

It could be as bad as that, but there are reasons for greater optimism this time around. Hard lessons were learned in the last recession and the survivors emerged determined to remain on a sounder commercial footing in future. Part of that strategy involved not incurring too much debt that could only be paid back if the good times continued to roll. Another was not to chase workload to commercially suicidal levels if and when prices started to fall.

The big question is whether commercial discipline has held in the face of the immense pressures of the past year or so. There have been some reports of steelwork contractors taking work at below cost. Clearly this, if true, is not sustainable. Some balance sheets can take the strain for a limited period to keep workforces intact, but reality will eventually catch up.

Some steelwork contractors have preferred to mothball plant rather than accept the uneconomic prices being sought in the market. Main contractors have demanded the best – lowest – price that they can find. Placing of orders has been put off in the expectation that a cheaper price would be available next week. All that is about to change.

At the end of the last recession, prices started to rise at a speed that took many by surprise. Stockpiles of steel have now been run down and can be expected to be built up again. World demand for steel, not only for construction uses, is forecast to rise significantly next year and world prices are already rising. Main contractors risk being overtaken by events if they keep delaying placing orders.

The UK steel construction industry is the best in the world and that is not going to change despite the pressures of recession. There may be a few absent names from tender lists in future, but the choice of steelwork contractors will still be a lot wider than that for any other material. After the recession it can confidently be promised that steel will still retain its competitive advantages.

Nick Barrett


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