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Steel chief warns of tough market

Several UK steel contractors may go out of business in the coming year as the market squeezes the sector, steel giant Severfield-Rowen has warned.

The company last week revealed turnover down by more than a third at £126.7 million for the six months to the end of June, from £200m a year earlier.

In what the firm described as a strong performance in the current market, it also said pre-tax profits fell by 75 per cent to £4.3m.

Steel contractors have this year found themselves trapped between soaring steel prices and falling tender prices.

Severfield-Rowen chief executive Tom Haughey told Construction News that many firms had been forced to operate at a loss and that some would have to “involuntarily give up” if conditions did not improve.

“Things are still tight and demand is not improving dramatically,” he said. “Some firms cannot sustain these losses for long. The UK steel industry is specific and so there isn’t an alternative pipeline of work.

“The sector is now likely to see substantial rationalisation in the next 12 months, leading ultimately to a more balanced supply/demand equation.”

One industry source said: “The market is so tough it’s encouraging to know they’ve managed to record pre-tax profits of £4.3m. In this market that’s impressive.”

He added: “It will be interesting to see where steel firms get next year’s turnover from though.”

Mr Haughey said he believed the UK economy was recovering more slowly than forecast and that some sectors in construction faced a prolonged challenge.

“UK demand recovery will be slower than forecast and it remains unclear whether a revival in private investment will be at sufficient pace to counteract the impact of the forthcoming public expenditure reductions,” he said.

Despite the weak market, the firm managed to reduce its net debt, which fell from £12m to £8.2m. Mr Haughey also pointed to a number of opportunities expected to appear from 2011.

“The key market sectors of power, energy and waste, London commercial offices and infrastructure present good opportunities in 2011 and beyond,” he said.

Steel prices have risen in the UK despite a lull in demand, because the huge requirement in China is distorting global prices.

An increase in tender prices is expected to occur later this year. CN reported last week that consultancy firms are advising clients to begin procuring construction work by the end of 2010 to benefit from current low rates.

However, BCSA director general Derek Tordoff warned earlier this year: “When the market picks up, companies go bust, because when prices start to go up, they don’t have the cash to pay for it.”