On the UK Steel Industry

I admit it – I am not an expert in the economics of steel manufacturing, but I have listened to and read the various analyses of the decline in our steel industry (alongside various other heavy manufacturing industries, such as ship-building) with confusion.

Ex-steel workers demonstrating the Arsenal off-side trap

My first question is – is the UK steel industry actually in decline?

This may seem perverse, given that the media has been full in recent weeks of news about plant closures and job losses.  As ever, statistics can be used to prove just about anything.  We are told that employment in the UK steel sector has fallen by 90% since the 1970s.

On the other hand, the International Steel Statistics Bureau say that production is actually growing from a low in 2011, and that, while imports increased dramatically in 2014, the overall trend is steady over the past 5 years, while the UK has had a positive balance of trade in this commodity in 5 of the last 8 years.

The executive summary of this report (admittedly a year old) states that the market is expected to return to “sustained growth”, while intense competition “remains a concern”.

Also, a February 2015 market report by IBISWorld supports the suggestion that there was a downturn due to the global collapse in 2008, but that a recovering global and UK economy has given the industry a positive outlook.  It suggests that even during the difficult period (the 5 years to 2014) the industry is expected to record compound annual growth of 0.9%!

So – is the industry in decline, has it merely suffered a blip (alongside almost every other market sector), or is it simply becoming less reliant on labour (as are most manufacturers)?  I don’t know.

Accepting that, at the very least, employment in the UK steel industry is in decline, the question then becomes:

What’s to be done about it?

We are told that the closure of various steel plants in recent years is down to:

  • high energy costs (especially when compared to competitor countries, principally China);
  • unfair competition from abroad (principally China);
  • a strong pound (particularly against the Euro and the Yuen);
  • weak demand for steel;
  • low prices for steel (driven down by weak demand and “unfair” competition from, principally China);
  • the cost of climate change policies (which are enforced more stringently here than in competitor countries, principally China); and
  • EU competition law which restricts the ways in which industries can be propped up by governments (unlike in competitor countries, principally China).

Frankly, I don’t know enough to say which of these factors is more important than any of the others.  The problem is, most analysis stops there.  Nobody seems to address the question – what can be done about any of this?

The UK is a relatively small player in a) the steel market, in which China produces almost as much steel as the rest of the World combined and b) the energy market, which is dominated by the OPEC countries and the US.  Currently, the pressure is for more environmental levies, not fewer, and (at least until next year’s referendum) there is no getting out of the EU competition laws.  As for the strong pound, well that is generally thought to be a Good Thing and is trumpeted as a sign of a strong economy, so no government is going to lose sleep about that.

The simple fact is, the British steel industry was at its peak when we produced loads of coal and when the British Empire gave us the power to control matters like commodity prices and cheap access to raw materials.  We are now a fairly minor player in a world where the cost of transporting steel from the far East isn’t so prohibitive as to outweigh its otherwise cheap price.

In other words, times have changed.*

For me, the challenge is not to “save” the industry, but to adjust to its decline.

Now unemployment is never fun (believe me, I know) and as the Mirror article linked at the top states, job losses in one industry have a knock-on effect in others.  This effect is especially hard hitting in places where a large proportion of the workforce is concentrated in one industry (or even one plant) and they all lose their jobs at the same time.

There are towns, villages and whole areas still struggling to recover from the closure of coal mines in the 1980s (Thatcher – booooooo!), so I do not seek to belittle the terrible effect that drastic shifts in employment patterns can have.

What is beholden on the current government is to learn the lessons of coal.

There are now said to be around 20,000 people employed in the UK steel industry.  20,000 is a lot of people – and people are more than simply numbers – but they only represent 0.05% of the UK working population.

If I were the opposition leader, I would be asking Cameron and Osborne not “where is your strategy to protect these jobs”, but “where is your strategy for helping the thousands who have recently lost their jobs, and what will you do to ensure that their skills and communities are not left to rot as were the miners’?”

Speak soon.

Labenal (@GoonerEll)

* Please note – I am not arguing that Britain is no longer “Great” etc.  We are just far stronger and bigger players in other areas now.  It’s pointless pretending we’re still the industrial giant we were 100-200 years ago.

One thought on “On the UK Steel Industry”

  1. Elliot , I don’t want to simplify and the simple answers that I have read or heard argued run along the lines of demand and cost to produce. However not being an economist the argument I have most forcefully seen put is that the energy costs to produce steel in the UK are twice what they are in Germany and clearly more than they are in China.
    Interestingly one of the big input costs to the price of energy , the argument goes , is the cross subsidies included n the energy costs that go to pay towards the European green policy targets that we have agreed to. The cost of these in UK apparently and I remain to be corrected is shared across the energy consuming industrial users and the general domestic consumers. In Germany this cross subsidy cost to the steel producers is not as punitive which means that German Steel producers don’t pay the same high energy input costs that British steel makers have to. Now isnt it a surprise that in the EU British consumers are paying more for Energy generally across the board.

    That then raises another interesting question about the new Nuclear Power Stations that the Chines are going to build for the UK in the recently signed up trade agreement with the British Government. The proposed Hinkley Point Nuclear Power station due to come on line in 20 – something will deliver a guaranteed price to the Investor of $90 per unit ( whicever I cant remember). Currently I understand the market price is somewhere between $20-30 and depending on whether there is a shortage in supply in 20 whenever , is it likely that the price of this nuclear energy will be that high and will it be economical to source energy at that price. What efect will those high prices have on other industries. And since when did the argument for nuclear energy change from one of too great a risk and too dirty to the preferrred source of energy. Incidentally the margin of excess capacity if electricity will be as low as it has ever been ( for I dont know how long).

    So Elliot now that you have brought up the discussion on the Steel industry, it raises all sorts of questions about a level playing field in the global market. And ironically the Chinese who are partly responsible for outcompeting the UK ( with whatever subsidy and economies of scale that they can muster ) are also going to benefit providing nuclear generated electricity which is going to be subsidised by the UK taxpayer . So we are going to artificially subsidise ( contrary to Market economics ) the Chinese Industry which is partly responsible for putting ou industries out of buusiness. Or have i missed a vital fact some where?

    Perhaps someone can sort out my confusion? or inaccurate facts?


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