A global supply glut caused by China’s slowdown has halved steel prices this year. Can Britain’s steel industry survive? Simon Wilson reports.
How big is the UK steel industry?
Small – and getting smaller. Annual production in the UK last year was 12 million tons (mt), and the sector employed around 18,000 people. That figure of 12mt is a bit more than it has been in the very recent past: following the global crash of 2008, steel production in this country fell below 10mt a year for four years on the trot, so the jump back up to 12mt marks a slight recovery. But the overall picture is one of gradual decline. Twenty years ago in the mid-1990s, the UK produced about 17mt a year – and the sector employed about twice as many people as it does now.
Yet even at its peak, in 1972, Britain was producing only around 28mt a year.
How does that compare globally?
It makes Britain a steel minnow, in a pool dominated by one giant shark. While the UK produced 12mt last year, China produced 823mt, accounting for around half of global production of 1.65 billion tons. The next biggest players are Japan (111mt), the US (88mt), India (87mt) and Russia (71mt). In the next tier are countries such as South Korea, Russia and Germany – and then come Turkey, Brazil, Ukraine, Italy and Taiwan, all of which produce two or three times as much as the UK. Overall, Britain is the 18th biggest global producer – a bit smaller than Iran, France and Spain, and a bit bigger than Poland and Austria.
Why is Britain in trouble now?
A “perfect storm” of factors, including sterling at a seven-year-high and high energy costs – but the overriding issue facing the industry is a global supply glut caused by the slowdown in China, meaning that China has spare capacity to export to other countries and prices are plunging as a result (down by half this year). As a result, UK steel-making is struggling to stay competitive – a string of firms have announced job losses in recent weeks, with thousands more at risk in the supply chain.
First, Thai-owned SSI announced it was closing down its Redcar works – home to the second-largest blast furnace in Europe – with the loss of 2,200 jobs. Next, parts of Caparo Industries’ steel operations went into administration, potentially putting 1,700 jobs at risk. Now India-owned Tata Steel has announced nearly 1,200 job losses at its plants in Scunthorpe and Lanarkshire.
Is China to blame?
It depends on how you look at it. The UK steel industry benefited hugely during China’s boom years, but now Chinese domestic demand is falling rapidly (down 7.5% year-on-year in July), while the drop in production is more modest – down 2.2% year-on-year last month. That means China’s overcapacity – what it makes but can’t use – is around 20 times UK annual production. As a result, UK imports of Chinese steel have soared, from 303,000 tons in 2013 to 687,000 tons last year, and up a further 27% in the first eight months of this year.
That’s still small compared to what we import from the EU (4.7mt last year) – but Chinese imports are cheaper. According to the EU’s statistics agency Eurostat, steel imported to the UK from the EU cost €897 a ton, whereas China’s cost €583. That’s cheap but probably not so freakishly cheap as to justify charges of below-cost predatory pricing (“dumping”). And for every UK steelmaker cursing foreign competition, there’s a willing purchaser glad to get a bargain.
How crucial are energy prices?
According to the industry, British steelmakers are paying more than twice as much for energy as French and German counterparts – a claim backed up by Eurostat. According to official figures, UK firms pay far and away the highest energy costs in the EU: “extra-large users” in this country paid on average just over 9p per kilowatt-hour last year, compared to 4.12p in France and 4.81p in Germany.
According to Gareth Stace, director of UK Steel, this disparity, and the government’s priority, must be “a clear and unambiguous commitment to fully implement the energy-intensive industries compensation package, which will go some way to rebalancing the crippling costs of electricity for British steel-making firms”.
What else can the government do?
It can’t hold back the forces of globalisation, which means that a smallish country where steel-making is a tiny part of the economy (accounting for about 20,000 jobs out of 30 million, or one in every 1,500) is vulnerable in the face of a giant rival with huge advantages of scale and costs. But there are things that the UK government can do, and the industry itself is clear on what it needs: lower business rates, a relaxation of carbon emissions targets for heavy manufacturers, and a commitment that only British steel is used in major UK construction projects.
The strategic issues
On economic grounds, says Ben Wright in The Daily Telegraph, British steel production (especially that based on old-style blast furnaces) doesn’t make sense. The “strategic arguments are more nuanced”. Is it a problem if the UK has to import all of its steel? Mostly, no. But there’s always a chance that we’ll suddenly need, say, “a few more battleships, aircraft carriers and submarines. At which point we’ll just have to hope our allies have retained their steel-making capacity and wouldn’t mind dreadfully sending us some.”
But if it’s in the UK’s strategic interests to keep its steel industry alive, then the question becomes whether there’s the political will to do so – in particular by pulling back on green commitments that have ramped up energy costs. Of that, there’s currently little sign.