Can One of the Top Economies Live Without Making Steel?

  • U.K. may lose final furnaces after centuries of steelmaking
  • `Steel is a fundamental part of any industrial nation'

Tata's Plant Sale Reflects U.K.’s Fading Steel Industry

The U.K. once made nearly half the world’s steel. Soon it may produce almost none.

Tata Steel Ltd. plans to sell its U.K. business which include the country’s last blast furnace sites in Scunthorpe and Port Talbot. Used to turn iron ore into steel, these giant plants are the focus of the entire industry. They are also the assets that may prove the most difficult to unload, according to at least one potential buyer.

Should Tata’s plants follow Redcar, shut last year, the U.K. would become the first member of the Group of Seven leading economies to operate no blast furnaces. It’s a far cry from its Victorian metal-bashing heyday when Britain produced about 40 percent of global supply. But beyond the immediate impact on employment, does it matter? Does a major industrial economy need to produce steel, a material vital to industries from construction to car making?

“They’re probably done for,” said Keith Burnett, vice-chancellor at the University of Sheffield, a place that won the moniker Steel City before the industry’s decline. “But if we accept that, it’s a really big step and the long-term consequences are to lose the capabilities to make our own railways, make our own weapon systems, make our own nuclear reactors.”

World Laggard

The U.K. was already the industrial world’s laggard when it comes to steel, producing just 12.1 million tons in 2014, less than a third of what Germany makes each year and just over a tenth of Japan’s 110.7 million-ton output. China is the world’s biggest producer making about half the world’s 1.67 billion tons of steel.

British steelmaking has been in relative decline for more than a century, eclipsed by the by the U.S. by the start of World War I and later overtaken by Germany. In the 1970s and 1980s, inefficient and outdated plants led to production falling 64 percent to less than 10 million metric tons, and the country’s output slipped below France, Italy and Belgium.

Still, manufacturing in steel-consuming industries is buoyant. U.K. car production hit a 10-year high last year with 1.6 million cars being made in Britain as overseas sales reached record numbers. The country employs 2.6 million people in manufacturing, much of it steel related, and it accounts for 44 percent of exports.

Manufacturing Base

“It’s absolutely essential that a foundation industry like steel is protected in order that we can have the much vaunted ‘march of the makers’ that the government talks about,” Len McCluskey, general secretary of Unite, the country’s largest trade union, said in a BBC interview. “The reality is that the whole of our manufacturing base, automotive, aerospace, defense, engineering, all require steel.”

Alan West, who was once Britain’s most senior naval officer and later a security minister in Gordon Brown’s government, told the BBC that retaining steelmaking was strategically important.

“Steel is a fundamental part of any industrial nation,” he said. “It would be unforgivable of the government to allow us to cease being a country that can actually produce steel.”

The concern may be overblown. Even the closure of Tata’s blast furnaces would leave steelmaking capacity in the form of scrap fed mini-mills across northern England and a plant in Cardiff. The country also has rolling and reinforcing plants that transform the base commodity steel into high-value metal ready to be used in everything from cars to fridges. Blast furnaces accounted for about 70 percent of the U.K.’s output in 2014.

Unproductive Work

There’s also an economic argument for letting Tata’s plants go.

“If we bail out industries that are unprofitable in the long term, we’re locking capital and labor into unproductive work,” said Sam Bowman, executive director of Adam Smith Institute, an economic policy research group. “If you bail out these firms, where do you stop? Basically you’d have given up on capitalism.”

That’s not stopped the panic in the U.K. where the government holding a crisis meeting Thursday. Speaking afterwards, Prime Minister David Cameron said that while he’s opposed to taking the company’s furnaces into public ownership, he wants to secure their long-term future.

“In the short term the damage will be to the people,” said Burnett. “In the long-term, it will lessen the integrated capabilities of the U.K. to do anything.”

European Retreat

Liberty House Group said Wednesday that taking on the Tata’s iron and steelmaking facilities would present a “huge challenge,” according to a statement from Executive Chairman Sanjeev Gupta. The company, which is buying two of Tata’s plants in Scotland, said it’s interested in the U.K. processing operations.

While the U.K. is currently at the center of the storm, the wider European steel industry has been in retreat for a while. ArcelorMittal, the world’s biggest producer, in the past few years has closed plants in Belgium and France, lowered production elsewhere and said it may shutter facilities in eastern Europe. Steel employment in Europe, which started falling before China’s exports surged, is down 20 percent since the financial crisis, while demand in the region remains 25 percent below pre-crash levels.

Behind this retreat has been a flood of exports from China as it exports unneeded metal as domestic demand slows. Exports from China rose by a fifth to a record 112 million metric tons in 2015. European hot-rolled coil, a benchmark for steel prices, sank in February to its lowest since at least 2007, down 75 percent from its peak.

“If policies to secure the industrial future of Europe’s basic materials industry aren’t quickly introduced, many thousand more EU-jobs are under severe threat,” said Wolfgang Eder, chief executive officer of Voestalpine AG, a producer of the metal in Austria, and chairman of the World Steel Association. “At the same time we are in danger of throwing away our last ace –- the technological leadership we still have in some of these areas –- because of the continuous lack of money for innovation and technical upgrading.”

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