Summary
Trade regime – 1 July step-change. The new UK trade measure replacing the safeguard cuts aggregate quota volume by ~60% and doubles the out-of-quota tariff to 50%, with the heaviest cuts to Hot Rolled Coil (HRC), sections and merchant bar.
Iran conflict has reopened the UK energy gap. Industrial electricity now sits at a 77% premium to French and German competitors, against ~25% before late February.
Monetary policy – hold, with a hike risk. The MPC voted 8-1 to hold rates at 3.75% on 30 April (one vote to hike). Q1 GDP +0.6% removes any growth-side case for cuts, markets now price meaningful probability of a hike.
British Steel fully nationalised. Legislation introduced on 11 May completes the first government takeover of a UK steelmaker since 1988. EU CBAM (“definitive phase”) is live, UK CBAM follows on 1 January 2027.
Credit risk is rising, concentrated downstream. Producers benefit from higher prices; downstream fabricators on fixed-price contracts absorb the cost step-change. UK construction is in its most sustained downturn since the global financial crisis.
Political risk – government authority contested. Growing numbers of Labour MPs have publicly called on the Prime Minister to set out a departure timetable. Execution risk over the Steel Strategy has risen materially.
The UK steel value chain enters H2 2026 in a fundamentally different position from the broader economy. H2 2026 will be the most challenging operating period for the UK steel industry since the immediate post-conflict period of early 2022.
The Macroeconomic Environment
Weak base energy shock unresolved
UK growth surprised positively in Q1. The ONS first estimate, released 14 May1, shows GDP grew 0.6% in the three months to March – the joint-fastest pace in the G7 alongside the US, with Q4 2025 also revised up to 0.2%. Services and manufacturing both posted 0.8% growth, with the latter including a 5.7% rebound in transport equipment as motor vehicle output (+10.9%) worked through the JLR cyber-attack catch-up. The print captures predominantly the period before the 28 February Iran escalation. The IMF’s April 2026 World Economic Outlook cut UK 2026 growth to 0.8% - the largest forecast downgrade applied to any G7 economy.
The Q1 print predates the events that now dominate the steel outlook – the Iran escalation, the construction downturn, the hawkish hold on rates, and the forthcoming tariff regime change. Both IMF and OECD forecasts now imply sharp H2 deceleration, with energy-intensive sectors disproportionately exposed.
1 https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/ gdpfirstquarterlyestimateuk/januarytomarch2026
Inflation: A Second Wave Arrives
CPI rose to 3.3% in the year to March 2026 2 from 3.0% in February; CPIH stood at 3.4%, up from 3.2%. Core CPI eased to 3.1% - thin reassurance given that energy is feeding through almost every input the steel sector buys. Crude oil input prices to UK manufacturers were up 58.3% in the year to March. Producer input prices rose 5.4%3 , against output prices of 2.6% - a 2.8 percentage point gap signalling margin compression for firms that cannot pass costs through quickly. Downstream fabricators on fixed-price contracts are where that pressure concentrates.
UK Inflation (various measures) and Bank of England CPI Inflation Target (y/y change in %)
Core CPI (excluding energy, food, alcohol and tobacco)
CPIH (including owner occupiers' housing costs) Bank of England CPI Inflation Target Jan-2021 Mar-2021 May-2021 Jul-2021 Sep-2021 Nov-2021 Jan-2022 Mar-2022 May-2022 Jul-2022 Sep-2022 Nov-2022 Jan-2023 Mar-2023 May-2023 Jul-2023 Sep-2023 Nov-2023 Jan-2024 Mar-2024 May-2024 Jul-2024 Sep-2024 Nov-2024 Jan-2025 Mar-2025 May-2025 Jul-2025 Sep-2025 Nov-2025 Jan-2026
Source: ONS, Bank of England
At its 30 April meeting, the Bank of England MPC projected CPI at 3.1% in Q2, 3.3% in Q3, and rising further into Q4 as higher energy and food prices feed through. Prior to the Iran conflict, CPI was expected to fall to around 2.0% from April, partly supported by Ofgem’s new energy price cap. That path has closed.
Monetary Policy: Hold-and-Watch, with the Bias to Hike
The MPC voted 8-1 to hold Bank Rate at 3.75% on 30 April; the dissenting member (Chief Economist Huw Pill) voted to raise to 4.0%. Market pricing has shifted decisively from start-of-year, when two to three cuts were expected. Cuts are off the table for 2026; markets are pricing the next move as more likely to be a hike than a cut on a sustained-conflict scenario.
Two channels matter most for steel. Industrial financing, where working capital costs and project finance margins have ticked higher with gilt yields, eroding the modest 2025 easing in effective rates. And demand, housing affordability, automotive consumer credit and commercial property finance all face renewed pressure, feeding through directly into the construction and automotive end-markets that together account for two-thirds of UK steel consumption.
Source: ONS, Bank of England
Note: Positive readings indicate margin relief (output prices rising faster than input prices); negative readings indicate margin squeeze. Margin conditions have turned negative again in early 2026 as energy and trade-policy cost pressures rebuild.
2 https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/march2026
3 https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/producerpriceinflation/march2026includingservicesjanuarytomarch2026
The Trade Policy Shock
The Most Material Change to UK Steel Trade Policy in a Decade
On 19 March 2026, the Government published the UK Steel Strategy4 . From 1 July, the safeguard regime is replaced by a new measure with three central features: aggregate import quota falls by approximately 60%; the out-of-quota tariff rises from 25% to 50%; and the scope expands beyond the 15 to 20 product categories. The hardest cuts hit Hot Rolled Coil (quota down c.96%), structural sections (EU-origin cuts above 84%), and merchant bar (effective 50% tariff on virtually all volume from day one). Hollow sections and tubes face average effective duties of 20-40% depending on size. The Government’s stated goal is to lift the domestic share of UK steel demand from 30% to up to 50%, backed by £2.5bn of National Wealth Fund investment.
Two caveats have emerged through April. The Construction Leadership Council, the British Constructional Steelwork Association (BCSA) and the Construction Products Association met ministers in mid-April; the Government has agreed to identify mitigations before 1 July, with the transitional scope and possible category-level carve-outs in active discussion. The BCSA has also flagged a structural gap: fabricated steel sits outside the quota scope. If raw steel is tariffed and finished fabricated assemblies are not, the policy creates an arbitrage that displaces demand from UK steel into imported fabricated steelwork – undermining the Strategy’s 30% -> 50% logic and squeezing UK steelwork fabricators caught between tariffed steel inputs and un-tariffed imported assemblies.
EU CBAM, the UK Gap Year, and the ETS Linkage Question
EU CBAM (the EU’s carbon-border tax on imported goods) entered its definitive phase on 1 January 2026, with the first quarterly certificate priced at €75.36. EU mills selling into the UK have largely passed this through as a €30-35/tonne carbon surcharge embedded in offer prices since January. UK exports to the EU – roughly 78% of total UK steel exports, around 1.9m tonnes in 2024 – face the reciprocal cost, which UK Steel estimates at around £800m a year for UK industry if unmitigated. The EU has so far rejected a temporary UK exemption; the only path to mutual relief is full ETS linkage, which both sides agreed in principle at the May 2025 summit. The next UK-EU summit later this spring is the near-term catalyst to watch.
UK CBAM goes live on 1 January 2027 under the Finance Act 2026, covering imports of aluminium, cement, fertiliser, hydrogen, iron and steel. The twelve-month asymmetry between EU CBAM (live) and UK CBAM (pending) opens a window through 2026 for UK importers to bring in carbon-intensive material from outside the EU without UK CBAM cost; anecdotal evidence points to stockpiling against this window. From January 2027 the window closes.
US Section 232 and the Global Redirection Problem
Direct UK-US trade volumes are modest, with UK exports under the preferential 25% rate (the lowest of any major exporter). The material issue is redirection. The EU and UK are the natural destinations for steel that no longer clears US customs under Section 232’s 50% headline tariff, and the EU’s parallel safeguard tightening pushes additional flow onto the UK. UK Steel and the Trade Remedies Authority have cited “dumping ground” risk as the primary justification for the 1 July measure. The 50% outof-quota tariff is, in the Government’s stated view, the minimum response consistent with preventing material harm to domestic producers. Even category-level tariff relief on the BCSA list would not remove the underlying redirection pressure on UK prices.
Political and Regulatory Environment
The UK Steel sector now operates under the deepest state involvement since the 1980s, at a moment when the political authority underwriting that involvement is itself under open challenge. Three threads run in parallel: full state ownership of British Steel, a fiscal commitment exceeding £3bn under the March 2026 Steel Strategy and the National Wealth Fund, and steel’s formal designation as a strategic industry under the September 2025 Defence Industrial Strategy. All three are products of the current Government, all three face execution risk from the unfolding Labour leadership crisis.
The 11 May legislation taking British Steel into full government ownership completes a process that began with April 2025’s intervention at Scunthorpe and August 2025’s takeover of Liberty Steel’s Yorkshire operations.
Near-Term Political Calendar
Three threads run on the near-term political calendar, with the Labour leadership crisis cutting across all of them. The next UKEU summit, expected this spring, is the principal catalyst for ETS linkage and reciprocal CBAM relief (worth around £800m a year to UK exporters on UK Steel estimates) – but the Government’s negotiating capacity is materially diminished while the PM’s authority is contested. Discussions with the Construction Leadership Council and the BCSA on 1 July transitional arrangements conclude before that date; the political incentive to deliver visible mitigations has risen, but ministerial bandwidth has fallen. The May 2025 India trade deal continues to phase in, offering a modest offset to weakening US and EU channels.
Four of six main producers now receive direct government support, reopening the late-2025 question of whether the remaining assets should be consolidated into a single national entity before any return to private ownership. The proposal remains under review.
The British Industry Supercharger uplift from 60% to 90% on network charges (effective 1 April 2026) and the British Industrial Competitiveness Scheme (April 2027) together commit around £420m per year in industrial energy support, on top of the £2.5bn Steel Strategy package.
The September 2025 Defence Industrial Strategy formalises domestic supply-chain priority across defence and infrastructure procurement – slower-acting than tariffs, but more durable.
A change of Labour leader – and a likely new Chancellor – would create open-ended execution risk over the £2.5bn Steel Strategy commitment, the producer consolidation question and the British Industrial Competitiveness Scheme.
4 https://www.gov.uk/government/publications/steel-strategy/the-uk-steel-strategy-web-version
How the Iran Conflict Reaches UK Steel
The trade-policy shock is the dominant medium-term driver. The Iran conflict is the dominant short-term driver. Tariffs work through relative price; the conflict through absolute cost levels and supply reliability. The position has deteriorated since the start of May – Strait of Hormuz traffic is running at around 5% of pre-war levels, the US launched a counterblockade on ships heading to Iranian ports and on 12 May the US publicly rejected Iran’s ceasefire counteroffer. Brent was around $108/bbl on 13 May. Three channels reach UK steel.
Channel 1: Energy Costs
UK steelmakers already operated with the highest industrial electricity costs in the G7 before the conflict – a 25% premium to French and German competitors. The Iran shock has pushed that gap to 77% on UK Steel’s analysis 5 . Indicative 2026 industrial electricity is around £84/MWh in the UK against approximately £48/MWh in France and £65/MWh in Germany. UK NBP gas reached 114.84p/therm on 13 May, up 38.6% y/y. This matters disproportionately because gas-fired plants still set the marginal UK power price. UK industrial electricity moved from tenthhighest in Europe in 2019 to highest by 2024, and energyintensive industry output fell 8% over the same period while the rest of the economy grew over 6%. The Iran shock is intensifying a pre-existing competitiveness gap, not creating it.
From 1 April 2026, the British Industry Supercharger lifted the discount on electricity network charges from 60% to 90% for around 500 of the most energy-intensive firms, worth around £420m per year. The British Industrial Competitiveness Scheme (BICS), in consultation, will cover 7,000-10,000 supply-chain manufacturers, with bills cut from April 2027. Both are real and material; neither closes the wholesale gap with continental competitors. For producers, the Supercharger uplift does not move the dial; for the supply chain, BICS arrives too late to soften the next twelve months.
European Industrial Electricity Prices (€/MWh)
Source: ONS
5 https://www.uksteel.org/steel-news-2026/uk-steel-competitiveness-scheme-welcome-but-electricity-price-crisis-for-steel-deepens
Channel 2: Freight, Shipping Insurance and Supplier Delivery Times
Freight rates from Türkiye – the most important non-EU origin for UK steel imports – have approximately doubled since the conflict began, with one UK importer reporting rates moving from $75/ tonne to $150/tonne. Vessels avoiding the Red Sea around the Cape of Good Hope, are adding 10-14 days. War-risk insurance premia for Gulf transits have risen from 0.125% to 0.2-0.4% of vessel insurance value per transit – around $250,000 per very large tanker. The April UK Manufacturing PMI recorded the worst supplier delivery times since June 2022, with fuel surcharges and Gulf-region material disruption cited. Buyers bringing forward imports ahead of 1 July face longer transit times and higher costs precisely when they most need certainty. Working capital is being absorbed unusually fast through Q2, with consequences for the credit health of stockists and processors.
Channel 3: Raw Materials and Global Redirection
Iron ore prices have remained contained on weak Chinese demand. Scrap markets are mixed. Turkish scrap has firmed on transport disruption; UAE scrap is in oversupply with prices easing. Two indirect effects matter most for the UK. Indian steel mills are facing gas supply shortages – Hormuz disrupts roughly 20% of global LNG flow – pushing Indian export prices to multiyear highs and reducing the competitiveness of Indian-origin imports into the UK. The EU CBAM Q1 certificate price has set a floor under EU-origin material. Higher EU prices, higher Asian export prices and tighter UK quotas push in the same direction: less competitively-priced material reaching the UK through H2.
UK Steel Production, Demand and Prices
Production: Nationalisation, Transition, Partial Restoration
UK crude steel production fell to under 4m tonnes in 2024, a 29% decline on 2023’s 5.6m tonnes – the lowest output since the Great Depression. The National Audit Office’s March 2026 investigation into British Steel implies a further fall to around 2.5m tonnes in 2025, the steepest two-year contraction in the modern history of the industry. Domestic production now meets approximately 30% of UK demand of 9.2m tonnes, imports account for the remaining 70%, up from 60% in 2023 and 55% in 2022.
The most material producer development of the year is the formal nationalisation of British Steel. On 11 May 2026, the Prime Minister announced legislation to take “full national ownership” of the company – the first government takeover of a UK steelmaker since 1988 – after commercial sale negotiations with Chinese owner Jingye failed. The Scunthorpe site remains the only UK location producing primary virgin steel from blast furnaces; daily running costs of around £1.3m are, in significant part, a workforce preservation cost.
Tata Steel UK’s Port Talbot transition is the most visible privatesector story. Construction of the £1.25bn Electric Arc Furnace began in July 2025; commissioning is targeted for end-2027. From late 2024 to end-2027, Port Talbot operates as a re-roller of imported slabs rather than a primary producer. Project cost inflation in a highenergy environment remains a risk worth tracking.
Source: World Steel Association, NAO;
Note: 2025 data are estimates: Crude Steel Production from NAO report “Investigation into the government’s intervention in British Steel’s Scunthorpe site”, March 2026; Apparent Steel Use based on World Steel Short Range Outlook; 2025 are NAO-derived estimates
UK Crude Steel Production and Apparent Steel Use (in million tonnes)
UK Industrial Production Indices for Metals Subsectors (Index, Jan 2022=100)
Manufacture of Basic Metals
Manufacture of Basic Iron and Steel
Manufacture of Other Basic Metals and Casting
Manufacture of Fabricated Metal Products except Machinery & Equipment
Source: ONS
Note: Indices of Production by industry, monthly, seasonally adjusted. Latest data to March 2026
Capacity is being partially restored elsewhere. Speciality Steel UK Limited (SSUK) entered compulsory liquidation in August 2025; the Official Receiver announced a preferred bidder in April 2026 (identity undisclosed). Liberty’s Dalzell plate mill is reported to be planning a restart, and Corinth Pipeworks acquired Liberty Pipes Hartlepool. The cumulative effect is a partial restoration of capacity that was effectively offline through 2025.
Demand: Construction in Contraction, Automotive Front-Loading
Construction (53% of UK steel demand) and automotive (14%) are both weak. UK construction is in its most sustained downturn since the global financial crisis. Q1 2026 ONS data show headline construction output up 0.4% q/q on repair and maintenance strength, but new work fell, with private new housing – the most steel-intensive new-build segment – down 2.6%. Glenigan data show new construction project starts down 18% y/y in March (residential -29.8%, civil engineering -33.5%). Begbies Traynor’s Q1 2026 Red Flag Alert recorded 9,466 UK construction businesses in critical financial distress, up 49% on Q1 2025. For long products and rebar, this is a deeply unfavourable demand backdrop, mitigated only by the durable infrastructure pipeline.
The automotive picture is similarly weak with a specific overlay. UK car production fell 12% in H1 2025; SMMT expects 2025 full-year production around 755,000 units, a further 15% decline. Q1 ONS production data show motor vehicle output up 10.9%, but the ONS attributes this to base effects from the JLR cyber-attack disruption
UK Car Production (rolling 12-month)
rather than to underlying demand. SMMT and survey-based forward indicators point to inventory accumulation and pre-1 July order acceleration as the drivers of current activity, with business optimism at a one-year low. Read together, the prints point to sharper Q3 weakness in steel-exposed automotive volume.
Infrastructure provides the partial offset. The Government’s 10year Infrastructure Strategy commits £725bn of public funding across the National Infrastructure and Service Transformation Authority pipeline. Energy is the largest sector at £365bn. The 1 July trade measure is paired explicitly with this pipeline: protected domestic capacity supplies a high share of contractually-committed infrastructure work. Defence, aerospace and industrial/logistics construction demand provide additional firm demand for specialist long products, plate and high-grade specialty steels.
Source: SMMT; ONS
Note: SMMT forecasts 2025 full-year UK car production of around 755,000 units (a 15% decline on 2024), with 2026 production of approximately 720,000 units. Forecasts published April 2026.
UK Has Moved Ahead of NW European Levels
UK steel prices are rising on the combination of CBAM-loaded EU offers, tightening pre-tariff supply, freight increases, and front-loaded demand. UK HRC tracked Western Europe prices through Q1 2026 – rising from around $750/tonne in early January to roughly $850/tonne by late April – a c.13% increase – before pulling ahead in Q2. EU HRC rose into Q1 2026 as CBAM came into force; UK prices closed the gap with Continental Europe through Q1 and moved ahead of NW European levels into Q2.
The picture is more pronounced on long products, which trade primarily in the domestic market and are priced in sterling. Structural sections moved from approximately £700/tonne in February to approximately £950/tonne by early May, a rise of around 35%. Hollow sections moved from £1,100/tonne to £1,450/tonne in similar fashion. Downstream contracts negotiated against late-2025 reference prices are now mispriced by 20-35%, which is the central source of margin compression in fabrication and processing through Q2.
Hot-Rolled Coil Steel Prices US/EU/China/World (in $ per tonne) Prices:
The Fixed-Price Contract Problem
The credit-relevant question is who bears the cost. Producers benefit from higher prices but face higher input costs, particularly on energy. Service centres and stockists with flexible pricing pass through, but face demand drag and inventory absorption. The acutely exposed group is downstream fabricators, processors and end-users on fixed-price contracts who cannot pass on the input shock. This is the same vulnerability that drove specialist construction subcontractor insolvencies in 2022-23 following the Russia-Ukraine commodity shock; it is being repeated, with steelspecific intensification, through the current cycle.
Source: SteelBenchmarker
Note: Weekly HRC prices, $/tonne. SteelBenchmarker publishes the series as ‘Hot Rolled Band’ (HRB), equivalent to Hot Rolled Coil (HRC). Bi-weekly prices, $/tonne. The step-up in the US series in Feb-Mar 2025 reflects doubling of Section 232 steel tariffs from 25% to 50%, effective 12 March 2025. Latest data to 27 April 2026.
Labour Market: Chronic Scarcity, Rising Costs
UK Labour Market: Slack Returning, Hiring Deferred
Despite Q1 GDP strength, the UK labour market continues to soften, with the Iran conflict accelerating an already-loosening trend. The KPMG and REC UK Report on Jobs6 , published 11 May, shows permanent staff appointments in April falling at their quickest pace since January, with respondents directly attributing the deterioration to Iran-conflict uncertainty and rising business costs.
This corroborates the official data. Unemployment stood at 4.9% in the three months to February up from 4.4% a year earlier. Total vacancies fell to 711,000 in January-March – the lowest level since 2021 – with declines across 15 of 18 industry sectors. Payrolled employees fell 65,000 y/y to March. Regular private sector earnings growth slowed to 3.2%, the weakest since 2020. The pattern of rising slack and decelerating wages would, in normal circumstances, support a resumption of the rate-cutting cycle; the energydriven inflation overlay is what is preventing that.
Steel-specific Employment
The Government’s March 2026 Steel Strategy puts direct employment at approximately 40,000, with a further 42,000 in the wider supply chain. The sector entered 2026 midrestructuring and the events of the past two months have reinforced rather than altered the trajectory. Tata Steel’s blast-furnace-to-EAF transition involves approximately 2,800 redundancies through 2024-26, supported by a £100m transition fund. British Steel’s c.2,700-strong workforce at Scunthorpe has been preserved through government direction and is now structurally protected following the 11 May nationalisation. SSUK’s 1,450 roles at Rotherham and Stocksbridge remain preserved pending the preferred-bidder outcome. Tata’s £1.25bn EAF at Port Talbot will, on end-2027 commissioning, employ materially fewer people than the legacy integrated site.
One signal from the May KPMG/REC release stands out for steel: engineering was the only one of ten monitored categories to register an increase in demand for permanent workers in April. This is consistent with the infrastructure, defence and energy demand backdrop identified earlier in this report, and points to a labour market in which specialist steel and metals skills retain a premium even as broader hiring deteriorates.
6 https://kpmg.com/uk/en/media/press-releases/2026/05/kpmg-and-rec-ukreport-on-jobs.html
Credit Risk and Insolvency
Stress is Rising Along the Value Chain; the Picture is Asymmetric.
The aggregate UK insolvency picture is no longer accelerating in the way it did through 2022-23. The 12-month rolling rate stood at 51.6 per 10,000 companies on the effective register at end-March 2026, down from 53.0 a year earlier; March itself saw administrations rise 82% y/y, with more than 100 connected real estate companies entering administration on a single day. Begbies Traynor’s Q1 2026 Red Flag Alert reported a 36.9% rise in UK businesses in critical
financial distress, to 62,193 firms, with construction critical distress climbing 49% y/y to 9,466. EYParthenon’s Profit Warning Report shows UK-listed FTSE Construction and Materials companies issued the most profit warnings in H1 2025 since the pandemic –eight in H1 2025, four times the H1 2024 total – with policy change and geopolitical uncertainty cited as the leading factor. Construction remains the highestrisk sector overall: 17% of all UK business failures in the 12 months to February 2026, despite the sector representing only 6-7% of GVA.
Source: The Insolvency Service, ONS; Insolvencies in the Metals Manufacturing Sector (England and Wales)
Note: Construction shown for context as the largest end-market for UK fabricated metal products.
Two features of the insolvencies chart are worth highlighting. First, the spike in metals manufacturing insolvencies in SeptemberOctober 2025 (around 40 against a ~25 monthly average) corresponds to the JLR cyber-attack period. JLR is a major UK steel buyer for body-in-white and chassis components; the five-week production halt placed sustained working capital pressure on Tier 1 and Tier 2 metals suppliers, and the lagged insolvency response is consistent with a six-to-ten week distress-to-formal-failure pathway. Second, construction insolvencies have been on a clear downward trend from their late-2023 peak. The picture is not generalised industrial credit deterioration but sector-specific stress concentrated in the segments below.
Where Steel-Specific Stress is Concentrating
Within the steel value chain we see four credit risk concentrations.
• Smaller specialist subcontractors and fabricators on fixed-price contracts. 2-5% margins, minimal cost-pass-through provisions, limited Supercharger or BICS access, and direct exposure to the 1 July tariff cliff. The vulnerability that produced the 2022-23 wave for specialist construction trades is reasserting itself.
• Downstream stockists and service centres carrying inventory bought at peak Q2 prices. Working capital is being absorbed through both volume and price increases, and any demand softening or partial tariff retracement on policy review would compress margins through inventory write-downs.
• Downstream end-users in construction and automotive who buy at post-1 July price levels. Tier-2 and tier-3 automotive supply base is most vulnerable.
• Traders and importers caught between contracts agreed pre-14 March and the operational reality of compressed Q2 quotas. The legal and credit position is unusually fluid where the transitional arrangement does not apply.
Payment Behaviour and the Relevance of Trade Credit
Payment performance is deteriorating. The April 2026 Allianz Trade Global Survey – the first to capture firm views before and after the Iran conflict – found non-payment risk fears up 6 percentage points to 40% globally, with construction one of the three most-exposed sectors and transport equipment the worstaffected for long payment delays. Both cut directly into the two end-markets that account for two-thirds of UK steel consumption. Only 7% of companies are now paid within 30 days (-4pp on 2025) and 24% paid after 70 days (+7pp). Within steel specifically, anecdotal evidence suggests creditors are moving more quickly to formal enforcement than 12-18 months ago. The Government’s intent to raise UK domestic steel market share from 30% to 50% implicitly requires UK producers to extend their commercial relationships, making credit insurance directly relevant to the Steel Strategy.
Source: The Insolvency Service, ONS
Note: Construction shown for context as the largest end-market for UK fabricated metal products.
Outlook
Base Case and Scenarios
The UK steel value chain enters H2 2026 in a fundamentally different position from the broader economy. H2 2026 will be the most challenging operating period for the UK steel industry since the immediate post-conflict period of early 2022. The 1 July tariff regime compresses import volumes and lifts prices; the Iran-driven energy and freight overlay runs concurrently and is unlikely to fully unwind within two quarters. Our central path mirrors the adverse case in the Construction Sector Report (April 2026): Strait of Hormuz restrictions persist, Brent oscillates in the $100-115/bbl range, the UK industrial electricity premium to France and Germany stays around 75%, CPI sustains around 3.7% into early 2027, and the central bank policy rate is held at 3.75% through 2026.
For UK steel, this means:
• UK steel prices settle 15-25% above end-2025 levels through H2, with HRC and structural sections at the upper end and rebar at the lower.
• Domestic crude steel remains around 4m tonnes for full-year 2026.
• The producer-downstream asymmetry intensifies. The Supercharger and BICS support producer margins; downstream fabricators absorb the full cost stepchange.
• Insolvencies in the steel-exposed value chain rise through H2, peaking in Q3, concentrated in specialist construction fabricators on fixed-price contracts and the smaller specialist firms further down the automotive supply chain.
• Trade credit losses rise, concentrated downstream.
Scenario A:
If the conflict is protracted, Brent holds above $115/bbl and gas supply disruption persists into 2027. CPI passes through into core, the MPC raises rates to 4.25-4.50% by year-end, and credit conditions tighten further. Demand destruction in construction and automotive accelerates. UK steel prices rise 30%+ from end-2025 levels but on collapsing volumes. Producer financial positions become acutely dependent on direct government support beyond the current framework.
The key trigger to watch is whether the May or June CPI reading shows energy pass-through into core inflation – if it does, the rate hike moves from tail risk to live consideration.
Scenario B:
If the Strait of Hormuz reopens to commercial traffic in Q3 and Brent settles back toward $80/bbl, the UK energy premium narrows toward the pre-conflict 25%, CPI peaks at around 3.6% mid-2026 and declines into 2027. UK steel prices settle 10-15% above end-2025 levels – driven by the trade measure rather than energy. Producer-side credit risk eases through H2 as the energy gap narrows; downstream credit risk remains concentrated but moderates from Q4. The BoE resumes a cautious rate-cutting cycle, with the policy rate at 3.25-3.50% by year-end, supporting recovery in construction and automotive demand into 2027. Domestic crude steel finishes slightly above 4m tonnes.
The key trigger to watch is Brent sustained below $100/bbl alongside operational normalisation of Strait of Hormuz transit –if both materialise before the August MPC, a Q4 cut becomes plausible.
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