Politicians of all persuasions, have in recent months spoken of the importance of the steel industry with the PM describing our sector as “vital” and the business minister going further by saying the UK steel industry as one of the core things a country needs that it couldn’t possibly live without.
The steel sector is the foundation of many manufacturing supply chains, including aerospace, automotive, defence and construction. It is at the forefront of groundbreaking innovation, it is committed to sustainability, it is a significant provider of high quality apprenticeships, and it provides a substantial contribution to the UK economy.
The prospects of future growth has been severely damaged by the irrevocable loss of capacity and skills and the costs involved of reopening many of the facilities is unrealistic. Steel plants cannot just be turned on one morning, if demand returns, or the flood of current imports stops.
Steel covers a much wider range of grades and qualities than most bulk commodities and the supply chain in the UK is not solely interested in lowest cost, but value. For example quality costs/benefits of products, energy and water management, the full costs associated with transport and delivery, lead times, and risk to name but a few examples. If our ability to produce steel is diminished, a number of these areas, which our manufacturing supply chain and government find intrinsically important, will be lost.
The impact from China cannot be underestimated and is a glimpse into the future, for not only steel, but for other strategically important sectors, including those further along the supply chain.
I believe strongly that the UK can compete in a free market,. However this is not the current situation we find ourselves in, with losses of China’s 101 biggest steel firms coming in at $11 billion dollars in the first ten months of 2015. This signifies close to $34 of losses for every tonne of crude steel produced. In any other country, there would be significant site closures, however this is not the case in China. It could be argued that there are many steel companies in China that its government may view as ‘too big to fail’ and therefore are supported to supply onto the global market ‘at less than adequate remuneration’.
If China’s demand for steel increases, it would be foolish to suggest that they will continue to export at levels to meet future European demand. Quality requirements in the UK will be not be satisfied if there is no or very limited production.
The argument that the bad news about steel will not spread further down the supply chain, is foolishly short sighted. The slow burn throughout these strategically important supply chains will continue. It is of serious concern that large swathes of our manufacturing industries may be unable to source the steel needed to produce products that we are not only global leaders in producing, but also items that are of such strategic importance to our energy and security needs.
A recent survey of manufacturing companies asked what the biggest risks to growth were in 2016. Companies cited see-saw exchange rates, economic volatility in major markets, upward pressure on business costs, and access to external finance. These are all risks which the steel industry has long been concerned about and which are hitting the industry all at once – a toxic cocktail of conditions. If other sectors follow the trend of steel, then the next year signifies a challenging and uncertain time for everyone in UK manufacturing.
4 ways the government must help
1)Stop Chinese dumping: ministers must push the European Commission to clamp down on a flood of cheap Chinese steel into Europe. Around 70% of Chinese producers are propped up by state subsidises and lose an estimated $34 per tonne. The situation could worsen if China is granted Market Economic Status by the EU.
2)Bring down business rates: UK business rates are up to ten times higher than those paid in competitors in France and China says UK Steel.
3)Buy British: the government must ensure that all major procurement projects source homemade steel. It would be a “national disgrace” if projects like Hinkley Point nuclear power station are constructed with foreign says UK Steel.
4)Skills and innovation subsidy: the government should co-invest with operators looking to bring new innovations to market or upskill their workforces.
