Bust comes before boom for UK mid-market steel firms

The Department for Business unveiled its £2.5 billion UK Steel Strategy in March, aimed at supporting decarbonisation, limiting reliance on imports, preserving national security and strengthening demand for steel. 

But government intervention in the sector remains heavily directed toward primary steel production. This includes £500 million of grant funding committed for Tata Steel’s EAF transition; the implementation of stricter Tariff Rate Quotas to safeguard domestic production; and the notable nationalisation of British Steel in July 2026.

These are among the big headlines we see in the steel industry. But public ownership alone does not solve the broader challenges of competitiveness facing the wider supply chain. And while the major producers mop up the news coverage, the downstream operational and financial risks are often overlooked.

While steelmaking itself is concentrated in only a handful of major mills, there were more than 20,000 metal fabrication businesses registered in the UK as of August 2026. 

This downstream market of stockholders, service centres, recyclers, foundries, processors and machinists forms the beating heart of the UK steel industry. It is also this mid-level market where the bulk of credit strains are emerging.
 

Double-edged sword of policy intervention

Measures aimed at shielding domestic producers are driving up prices and creating margin pressure for mid-market buyers. 

These include tightened Tariff-Rate Quotas (TRQs), which came into force in July. They reduce the volume of tariff-free steel that can enter the UK by around 60% compared with the previous safeguard regime. The tariff on imports above quota has doubled, to 50%. 

This all has a huge impact, redirecting established supply chains and reshaping UK import channels. Although inward processing rules provide some limited reliefs for exporters, significant swathes of the UK downstream market have already been materially impacted.

Further restrictions will apply from next year when the UK implements the Carbon Border Adjustment Mechanism (CBAM) from January 2027. The policy aims to ensure that imported, highly carbon-intensive goods are subject to a comparable carbon cost burden when entering the UK market as equivalent products produced in the UK. 

CBAM, while important from an environmental perspective, makes it more difficult to import from some markets. As a result, steel processors are shopping around and re-thinking supply chains.

In the longer term, the combination of CBAM and tighter TRQs should encourage more domestic purchasing, reducing reliance on imported steel. However, given this transition is happening before new domestic capacity comes online, buyers are currently left with fewer low-cost options.

We’ve already seen front-loading in early 2026 as firms wanted to get ahead of these changes and what amounts to the closure of cheaper import markets.

Insolvency pressures are concentrated in the mid-market

Demand conditions also remain subdued. Weak economic growth, restrictive
monetary policy and tighter fiscal settings are weighing on UK manufacturing activity, construction output and business investment. 

In addition, higher energy costs and geopolitical uncertainty are constraining metals consumption. 

This is all further squeezing margins and driving mid-market businesses into insolvency. 

Metals and steel insolvencies were up 9.1% in 2025 and have continued to rise so far in 2026. We expect the number to remain elevated in the coming six months. 

The greatest risk is concentrated on firms running heavily-stocked models without price mechanisms in place to adapt to further price fluctuations. 

Businesses that are reliant on expensive debt or debtor-backed funding models to support working capital are also at particular risk as the decrease in output and pricing has materially weakened the availability of funding.

Insolvencies are also concentrated in metals fabrication. There's a lot of pressure on these firms to find some margin in the product because the demand just isn't there. 

Everything could look different by 2027/2028 

In the short term, these are very challenging times for the steel mid-market. It’s a highly volatile sector. 

CBAM’s implementation will add further pressure for importers in 2027. When the newly built EAFs start to come online from 2028, we will need to see underlying demand strengthen or risk introducing further overcapacity pressures. 

In the meantime, firms have to survive in these unusual, testing conditions.