What's really driving Britain's steel crisis
Why has the UK allowed such a vital strategic asset to be foreign owned, leaving taxpayers at the mercy of international conglomerates?
Hot on the heels of Rachel Reeves declaring in her Spring Statement that Britain is set to become a “defence industrial superpower”, there came the news that British Steel is set to close its Scunthorpe blast furnaces, ending centuries of steel-making in the United Kingdom country with the loss of thousands of jobs.
As expected, the threat prompted uproar from unions and politicians alike. How can any sophisticated economy claim to be a superpower if it doesn’t have the capacity to make the most basic commodity such as steel?
Why has the UK allowed such a vital strategic asset to be foreign owned, leaving taxpayers at the mercy of international conglomerates? And how can such an important commodity as steel be replaced by vulnerable foreign imports? These are valid questions.
Yet the truth, as always, is far more complicated. The reality is that the UK has not had a significant steel sector for decades, and what is left is dependent on imports of iron ore and coal to make the steel in Britain’s blast furnaces.
What’s more, only one-sixth of the UK’s final consumption of steel goods is made here. Output has halved since 1990, and most of what we make relies on importing iron ore and coke from Brazil and other countries, and is pretty low grade. Indeed, most of the low-value steel we used to make at Port Talbot - now closed - or Scunthorpe is sent overseas to Europe, where it is turned into high-value final goods.
The really big market is scrap metal. This is set to double in size to at least 20 million tonnes over the next 15 years as most of our steel stock is coming to the natural end of its 40-year cycle. At the moment, that scrap is sent overseas by ship to countries like Turkey for melting into low-grade steel products because it is cheaper than doing so here.
As we are consuming more steel - about 15 million tonnes of new steel each year in final goods such as bridges and buildings - the amount of scrap material is going to rise exponentially. If you counted every car or fridge being recycled each year in the UK, it would fill 350 acres of Hyde Park, with piles reaching 6ft high.
And recycling - or “upcycling” - that scrap into high-grade steel is what this latest fracas is about. What’s needed to recycle scrap metal into low-carbon but high-quality steel is an electric arc furnace, which costs a fortune. That’s why British Steel wants greater assistance from the government: the company says that it needs generous subsidies to help pay for new electric arc furnaces, and it has been in negotiations for months over the extent of the subsidies on offer.
Publicly, the firm’s Chinese owner, Jingye, is blaming tough market conditions, tariffs coming from across the Atlantic, and higher energy costs for its decision to consult over the closures. Reading between the lines, however, and it looks like the negotiations have come to a head now because British Steel was promised a £1 billion injection of taxpayers’ money to subsidise the transition to electric arcs as part of its £2 billion plan for the future of the company’s operations. But, at the moment, the government is only offering £500 million.
British Steel knows all too well that closing the UK’s last steel-making plant will not only cause a stir of patriotism, but will also put heat on the government because of the potential loss of 2,700 jobs, not to mention the devastation that closures would bring to communities dependent on the industry.
What we are seeing is the Chinese playing hard ball. Exactly why we have allowed a Chinese company to own such a strategic asset is another question. Maybe Labour should cut its losses and nationalise British Steel?
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