UK steel is globally insignificant and unviable: Taxpayers shouldn’t be forced to shoulder its losses
With the Port Talbot steelworks up for sale, Tata saying the value of its operations are “almost zero”, and a £485m pension deficit, prospects for the plant’s thousands of workers look grim. But while this is certainly a local tragedy, some perspective is needed.
Globally, the UK is responsible for 0.7 per cent of crude steel production. There are 31 companies in the world that each produce more steel than the UK – 14 of them are in China. Britain is not a major player in the global industry.
While it is a significant problem that the 35,000 jobs in steel are heavily concentrated in a few areas, with more than half of them in either Wales or Yorkshire and the Humber, steel production is not a significant contributor to the UK manufacturing sector either. The total output of the industry in 2014 was £2.2bn – equal to just 1 per cent of manufacturing and 0.1 per cent of UK output.
The increase in Chinese steel production is difficult to comprehend. Today, that country produces more steel than the world did in 1997, with the biggest Chinese company producing four times as much as the whole UK. This is a glut that isn’t going away anytime soon – Shanghai-based Baosteel, the fourth largest producer in the world, is increasing its output by 20 per cent this year.
And Chinese exporters have been very good at gaming the tax system to pump more surplus steel into world markets. Beijing cut tax rebates on exports of steel alloys containing boron, only for producers to make slightly different alloys to circumvent the subsidy cut. Tax rebates on steel products containing chromium can be as high as 13 per cent.
The impact of China’s production surge has been felt more acutely in the UK than in most other developed countries. Some outside the EU have resorted to huge tariffs, with the US hitting some Chinese imports with duties of several hundred per cent.
But the truth is that UK steelworks have failed to keep pace with those in other developed countries.
While potential buyers are surveying the various bits and pieces of Tata Steel’s UK business, none seem interested in the blast furnaces which use coke, iron ore and recycled steel. Such furnaces are considerably more energy intensive than electric arc furnaces and cannot easily be turned on and off. Some 40 per cent of EU steel was made using electric furnaces in 2014, compared to just 15 per cent in the UK.
Converting to electric arc furnaces would be hugely costly, and they would probably be prohibitively expensive to run anyway given that the UK has the most expensive electricity in the EU for both domestic and industrial consumers. The small rebates being offered by the government are tokenistic.
With a combination of global market conditions and domestic policy rendering much of the UK steel industry unviable, clamours for nationalisation are growing. We are told by some that steel is vital to national security and as important as “the banks.”
Even if steel were important from a security perspective, it’s not much of an argument for keeping Port Talbot open as it is, producing millions of tonnes. The construction of Britain’s two new aircraft carriers only requires 82,000 tonnes, several thousand of which have already been imported. Besides, the UK has to import the iron ore used in blast furnaces. At best this is an argument for mothballing some small plants or stockpiling.
And the comparison to RBS simply isn’t valid. At the time of the hugely regrettable bailout, its balance sheet was six times larger than that of Lehman Brothers and 50 per cent larger than UK GDP.
The argument for nationalising steel is one of sentiment over sense. A steelworks losing £1m a day isn’t viable and taxpayers shouldn’t be expected to shoulder the losses as they did yesteryear.