Yahoo Finance Out of the furnace and into the fire for ailing steelmakers
Britain’s steel industry – the country’s manufacturing backbone – faces a reckoning as it attempts to play its role in tackling climate change.
Some £6bn is needed to slash carbon emissions in the steel industry and switch to electricity or hydrogen. Large players are turning to the government for help to avoid being pushed to the brink.
Earlier this month, Tata Steel UK, the owner of Port Talbot in South Wales, raised the prospect of closing the sprawling steel works if help from Whitehall doesn’t materialise.
The company, owned by India’s Tata Group, wants £1.5bn – about half the estimated budget to make the site green. Port Talbot, and British Steel’s Scunthorpe Steelworks, both use carbon-intensive blast furnaces.
The pair, which are responsible for just under 6m tonnes of the total 7.2m produced by UK industry each year, will need the bulk of the funding to remedy their ageing hardware.
Without it, the initial impact would be in the thousands of jobs lost. Port Talbot alone employs 4,000 people and Scunthorpe about 3,000, out of the 35,500 working in the industry across Britain.
It also supports 43,000 jobs at suppliers, according to industry lobby group Steel UK. The mills are typically in poorer areas and provide skilled work with wages 59pc higher than those found in nearby jobs.
It would also dent the UK’s ability to make its own materials for manufacturers, just as importing and shipping goods becomes ever more precarious with shifts in demand and chaos at the ports causing huge price swings in everything from energy to computer chips.
The UK makes about 70pc of the steel it uses, and loss of the sites would mean importing nearly all the 10m tonnes that goes into everything from car making to tinned food. Huge buyers such as Network Rail, the car industry and the construction industry would have to look abroad, potentially at more expensive rates.
The whole sector is at stake, says Gareth Stace, director of UK Steel, adding that a lack of government support lies at the heart of the problem.
“Historically, and even now, the UK hasn't been the best place to make investments in the steel sector. Why? Well, because government policy on electricity prices, on business rates have not been the best,” he says.
Without support for the transition to greener plants, there will be a “slow erosion, we'll end up with no steel sector in UK and then we'll be at the beck and call and the whim of the global steel supply market as to where we buy our steel from, at what price, when it will be delivered, and what grade,” he adds.
British Steel – owned by China’s Jingye – is considering hydrogen to replace the methane it currently uses, as part of plans to be zero-carbon by 2050 and reduce output in the next 10 years.
It is understood that Tata is interested in electric arc furnaces that would use more green electricity as the grid shifts to renewables.
A blueprint for their plan can be found at Celsa Steel, in Cardiff, which has used similar furnaces since the 1970s. Yet it too has its own decarbonisation challenge – albeit to a lesser extent – as it uses natural gas to heat steel into form. The most obvious options would be for the company, which makes about 1m tonnes of steel a year, to swap methane for hydrogen to make the process fully green.
While steel companies are posting profits amid record prices for the metal and a recovery in demand, players say green plans are only possible with financial help.
In an interview with the Financial Times earlier this month, Natarajan Chandrasekaran, chairman of Tata Group, said Port Talbot would close unless a deal with the government is struck in the next year.
Tata UK Steel posted an £82m pre-tax profit in the year to the end of March, compared to a loss of £347m for the previous year, while Celsa’s holding company reported pre-tax profits of £22.4m in 2021, versus a loss of £19.5m the year before.
Concerns over the future of the industry follows the UK’s decision in June to extend five tariffs on imported steel by two years, in a probable breach of World Trade Organisation rules.
Britain carried over measures to protect the steel industry when it left the European Union. These rules apply to 15 categories of steel, restricting how much can be imported before 25pc tax is imposed. It is designed to protect the industry from cheap imports of types also made domestically.
The decision to keep one of the tariffs which protects a type of steel not made in the UK was criticised by the Confederation of British Metalforming, as importing customers still face being taxed – only adding to pressures.
As to whether the industry will get the help it wants, industry figures suggest Liz Truss could be the more understanding leader, if voted in, because of her experience as trade secretary when she overturned a previous TSA decision scrap tariffs on nine grades of steel – backing the domestic industry.
Ultimately, the government needs to decide whether it wants a steel industry or not, says UK Steel’s Stace.
“If we can't do that, then we will see further, and ongoing, slower erosion of investment in the sector,” he says. “It'll just be drip, drip drip over time, and then they'll go out of business.”
