Over the past few months, the steel industry in the UK has been grabbing the news headlines, but for all the wrong reasons.
The announcement by India’s Tata Steel that it plans to sell its UK steel business, putting thousands of jobs at risk, is the latest setback to an industry which has seen a succession of job cuts.
At the start of this year, Tata Steel, which currently employs 15,000 in the UK, announced plans for 1,050 job cuts, on top of the 1,200 it axed in October 2015 and the 720 it cut last summer.
Other firms’ decision to cut jobs has only adde to the woes.
In October, Thailand’s SSI announced it was closing down its Redcar works with the loss of 2,200 jobs, then parts of Caparo Industries’ steel operations went into administration putting 1,700 jobs potentially at risk.
The steel industry is hit by:
(a) high UK energy prices
(b) the extra cost of climate change policies
(c) and unfair competition from China – there have been allegations that Chinese steel is being sold in the UK at unrealistically low prices.
Sajid Javid to meet Mistry
Business secretary Sajid Javid will meet Tata chairman Cyrus Mistry in Mumbai on Wednesday over the disposal of its loss-making UK steel operations.
A report in the Financial Times said Prime Minister David Cameron will meet the Welsh First Minister Carwyn Jones on Tuesday to discuss how to attract potential buyers for sites such as Port Talbot without breaching EU rules on state aid.
On Monday, Jones, a Labour politician, launched a scathing attack on the UK government’s response, saying it had been “slow and inadequate”.
He singled out Britain’s opposition of higher EU taxes on Chinese steel, saying: “We need the UK to back higher tariffs.”
According to the FT report, a spokesperson for the PM said that, under state aid rules, the UK could still “provide financial support” for the steelmaking sites. That could include reducing pensions and energy costs. But asked for details, the spokesperson said the focus was currently “on how we get a genuine sales process off the ground”.
The government remains opposed to allowing higher tariffs on Chinese steel. “We don’t want to have decisions in one area which have an adverse impact in other areas,” the spokesperson said. On Sunday Javid had said there was no question of nationalising the £15bn pension fund for Tata Steel’s UK workers, which has a £475m deficit.
Who might save Talbot?
India-born Sanjeev Gupta, the founder of steel, commodities and property group, Liberty House, could be the knight in the shining armour to rescue Port Talbot Steelworks.
According to a BBC report, Sanjeev Gupta is to meet Sajid Javid to discuss his potential plans. Earlier, Gupta told the BBC that he would be interested in the whole business. He said: “Many (parts) are loss-making at the moment but we believe they can be turned around.”
Liberty has also struck a deal already to buy two Scottish steel mills from Tata. But these are very different from Port Talbot. Between them the two Scottish plants Clydebridge and Dalzell employ 270 people; in contrast Port Talbot employs 4,000.
Greybull Capital
The London-based business turnaround specialist is headed by two families – brothers Marc and Nathaniel Meyohas and Richard Perlhagen.
It rescued Monarch Airlines and has been in talks with Tata about a £400m deal for taking over its long products business, mainly in Scunthorpe in north Lincolnshire. Scunthorpe makes wire rods, steel beams and rail track –a very different business to Port Talbot – although it employs similar numbers of workers.
The company said it was not interested in taking over Port Talbot and has not had any discussions. In Scunthorpe, it is not expected that Greybull will takeover the British Steel pension liabilities, instead it is thought they would stay with Tata.
China the culprit
The industry blames cheap Chinese imports for a collapse in steel prices. China is now the world’s biggest steel producer, accounting for around 822 million tonnes a year – almost half of the world production.
The UK, which produces almost 12 million tonnes a year, is a minor player in terms of absolute output, but has sought to specialise in high-quality, high-value steel products. With China’s market slowing, their producers have been looking for export markets, such as the EU.
This has led to accusations of unfair competition, that Chinese producers are “dumping” steel products on overseas markets – that is not just selling them cheaply, taking advantage of their lower production costs, but actually selling them at a loss.
In 2015, the EU imposed anti-dumping duties for six months on some steel imports from China and Taiwan.
Available options
Tata Steel UK has operations in Port Talbot, Trostre, Shotton, Llanwern and Newport in Wales and Rotherham and Corby in England.
Sale
If a buyer can be found, this is the preferred outcome for everyone.
Business Secretary Sajid Javid has said: “There are buyers out there”, but no realistic candidate has put themselves forward. Tata invested £3bn into its UK operations and is losing £1m a day as steel prices continue to fall.
Nationalisation
It seems an unlikely scenario.
PM David Cameron said: “We are not ruling anything out. I don’t believe nationalisation is the right answer.”
But that is precisely what the Labour government did during the financial crisis when it bailed out the banking system. Royal Bank of Scotland is still majority (58%) owned by the government.
Temporary Nationalisation
If faced with immediate closure there might be an option for the government to temporarily take ownership before selling it on. The Scottish government temporarily nationalised Tata’s Lanarkshire mills during the sale to Liberty, although ownership lasted only a matter of minutes, and was done for technical reasons at no cost to the tax payer. Nationalisation of the business for the short-term might be politically more acceptable, but the government would have to absorb all the costs. It would also run into problems with EU rules on state aid.
Government support
There are other ways the government might support the steel business if no buyer comes forward soon. One option being considered by ministers is to “mothball” the blast furnace at Port Talbot. It is thought this would cost between £10m-£20m a month and would also involve laying off most of the workforce. Another option involves a buy-out by managers and staff at Port Talbot. While Tata called the plan “unaffordable” it might work with the help of government loans or loan guarantees, similar to the ones being considered in the sale of Scunthorpe to Greybull. Again the EU rules restrict what the government can do to help. The European Commission told the BBC: “EU rules do not allow rescue or restructuring aid such as emergency loans or government guarantees on loans to steel manufacturers in financial difficulties. This is because of past experience and taking into account the features of the EU steel industry, in particular its overcapacity.”
Closure
Everyone fears this option. The knock-on effects of a closure would be considerable. The IPPR think tank has estimated that while 15,000 jobs at Tata UK would go, there are another 25,000 in the supply chain that would also be at risk, although it says that some of these are not in the UK. The impact on the Port Talbot area where Tata Steel UK employs some 5,500 workers would be disastrous.
How vital is steel for UK?
Steel is vital for just about everything we use. Whether it is buildings, chemical, cars, lamps or drinks cans – all depend on it at some point.
About 18,000 people are directly employed in the steel industry. With a total UK workforce of 31 million this is just one in 1,700 jobs. However, if the industry was to shrink further there will be an impact in other allied sectors – steel processors, distributors, scrap metal dealers, metal traders and other metal product manufacturers. Many argue that this is not just a crisis for the steel sector, but one affecting UK manufacturing in general, which accounts for roughly 10% of UK economic output.
So what can the UK do?
The industry is clear what it needs: lower business rates, a relaxation of carbon emissions targets for heavy manufacturers, more compensation for high energy prices, and a commitment that British steel is used in major construction projects.
Steel industry’s future
Business Minister Anna Soubry said on Radio 4’s Today programme that the government was determined to ensure that Port Talbot continues to make steel.
The world faces a huge oversupply of steel – currently only two-thirds of the steel being produced is actually being used.
Tata itself says that “trading conditions in the UK and Europe have rapidly deteriorated” recently, due to the global oversupply of steel, a “significant” increase in exports into Europe, high manufacturing costs, continued weakness in UK demand for steel and a volatile currency.
Energy intensive businesses, like steelmakers, also face higher electricity prices in the UK than they do in many of the Britain’s European neighbours – and the industry has been calling for urgent action on this.
(Source: http://www.bbc.co.uk)
