“The UK steel industry is struggling for survival in the face of extremely challenging market conditions,” said Tata Europe CEO Karl Koehler.
It certainly is. Not since the end of the ’90s when the UK steel industry went through a major restructuring and British Steel was merged with Corus of the Netherlands has it faced such an uncertain future. The very future of the UK’s steel industry is threatened by a flood of cheap imports, particularly from China, a strong pound and high electricity costs, Tata said in its statement.
Following the collapse of the Thai-owned steel company SSI last month, the Redcar steel plant was closed. That was followed, within days, by Tata’s announcement of around 1,200 job losses, about 900 in Scunthorpe and 270 in Scotland as well as a small number at other Long Products Europe sites. The closure of coke ovens, blast furnaces and plate mills at Redcar and Tata’s operations has since been added the closure of Caparo Industries‘ bar operations.
What has caused the implosion of the industry? Readers in the US will not be surprised to hear cheap Chinese steel imports are at least a part of the problem, but where the US has been able to move decisively to raise anti-dumping complaints, in the EU agreement is needed across the sector and Brussels has been slow to act.
Strong Currency Weakens Domestic Production
That’s far too slow for large parts of the UK industry also hamstrung by a strong pound making imports relatively cheaper and exports relatively less competitive on world markets. Chinese steel consumption has peaked, yet their mills are still churning out more steel in one year than the UK can in 50 with an estimated 250 million metric tons of excess production flooding overseas markets. In the past 2 years, imports of steel plate into Europe have doubled and imports from China have quadrupled at the expense of domestic producers.
Nor is China likely to take action of it’s own accord, the steel industry employs 3.5 million people in China and is the 11th largest employer, Beijing is unlikely to do more than tinker around the edges closing the most polluting plants close to Beijing, wholesale restriction on production is not on the cards.
Government-Imposed Energy Penalties
In the UK, steelmakers are even further hamstrung by high energy costs due to the UK government’s subsidies to renewable energy programs where the costs are heaped directly onto consumers by way of higher tariffs.
British steelmakers pay nearly twice as much for their electricity as their German and French rivals, according to the Telegraph. And that’s many multiples higher than in China, which is somewhat less concerned about how much carbon dioxide it produces, and the US, which enjoys an abundance of cheap shale gas.
A steel industry consultant and academic, Rod Beddows has long held a view the UK should copy the US and more specifically adopt the electric arc furnace mini-mill model of Nucor, utilizing abundant domestic scrap to operate more capital efficient and flexible EAF steel production, a move that even heavily blast furnace reliant US Steel is reported to be taking with the establishment of a new EAF mini mill at it’s Fairfield works this year.
EAFS to the Rescue?
The UK would still be disadvantaged by high electricity costs, but if the country wants to retain any steelmaking capability this is an area the government can do something about. Green subsidies are hurting all manufacturers.
EAF production represented only some 16-17% of the UK’s basic steel production prior to the close of Redcar’s blast furnaces, now by default it will be more but whether the UK will have the opportunity to evolve to a more efficient model before Chinese imports and high energy costs destroy the rest of its steel industry remains to be seen. The US has much to be thankful for in active legislators and shale gas, the future may look tough, but at least there is a future for domestic steel production.