Steel is on its knees: How do we revive it?
Andrew Clark, GGF Advisory Board
Whenever the UK steel industry is debated, defeatists cry that it’s all just too difficult and perhaps we should simply shut up shop.
“Britain needs an industrial strategy – but not one that simply doles out cash to dying sectors,” wrote a Times columnist, Emma Duncan, recently, dubbing steel an “industry of the past”.
There is nothing inevitable, though, about the decline of UK steel. Germany produces nine times as much steel as the UK does, Italy makes five times as much and France twice as much according to WorldSteel.
In 1990, we were one of the top 10 steel producing nations in the world. But British Steel is now in its knees, losing £20 million a month in Scunthorpe, and Tata’s blast furnaces in Port Talbot have closed. We have lost our way. Where do we go from here?
It would be reckless to abandon steel – as the Government has recognised by seeking emergency powers from parliament to keep Scunthorpe’s blast furnaces open. As a foundation material, steel is strategically vital to our economy and to our national security.
It was an error for the Official Receiver to sell British Steel to Jingye, a Chinese buyer, in 2020. Jingye has run the already struggling primary production facilities into the ground, and now wants to shut British Steel’s furnaces but keep its downstream production facilities – supplying them with steel made in low-cost plants in China.
Nationalisation appears the only solution – but to avoid unending losses for taxpayers, this must come with measures to make steelmaking viable including:
Lower industrial energy prices for steelmakers. UK steelmakers pay 50% more for energy than their competitors in France and Germany. We must consider a special regime for high energy intensive industries. UK Steel suggests a ‘contract for difference’ mechanism, balancing out energy costs.
A fundamental ‘buy British’ policy for UK infrastructure. We are re-arming, and renewing our infrastructure. Wherever possible, steel for the new onshore windfarms, nuclear power stations, airport terminals and warships pledged by the Government should be procured from domestic producers.
A holistic strategy for the steel industry. Instead of waiting until a steel plant is on its knees and intervening at the eleventh hour, the Government’s upcoming industrial strategy must determine what level, and type, of steel we want – and need – to produce in the UK. Jonathan Reynolds’ “Plan for Steel’ consultation is a step forward.
Urgency in tackling imports. The elephant in the room is China, which produces half the world’s steel. Chinese domestic demand is sagging as its property market weakens, and more steel is being dumped on global markets. As the US raises tariffs, the UK must get tough in tackling dumping.
Finally, there is the challenge – and opportunity - of long-term investment. Scunthorpe’s blast furnaces are ageing and highly polluting. Technology is moving on – DRI (direct reduced iron) is a lower carbon method of steelmaking, and the industry is exploring use of hydrogen.
A transition of this kind will be costly but by investing side-by-side with the private sector, and by moving early, there are paybacks to be had in the long term. The German government is investing €1.3 billion to help ArcelorMittal decarbonise its steel plants, as part of a total program worth €2.4 billion. The UK Government needs to find a private sector partner with similar ambition, and a willingness to share the long-term gains.
Andrew Clark is a member of the Good Growth Foundation’s advisory board. He is a Director at Rud Pedersen UK, and a former UK Head of Communications at Liberty Steel.
