Steeling ourselves for trouble

Steeling ourselves for trouble

Here’s a nugget that goes at least some of the way towards explaining the current woes of the British steel industry: in the past two years alone China has produced more steel than the total cumulative output of the UK since the industrial revolution.

Or consider this: at today’s rate of production, it would take 68 years for Britain to generate the steel China churns out of its mills in a single year.

Take a moment to digest these facts, because you simply cannot understand the pressures faced by the British, or for that matter every country’s steel industry without considering China.

Steel is, of course the critical ingredient in modern manufacturing and construction. If you are making something – anything – the chances you will need steel to make it with, whether that’s a car, a rail line, a can of food or a skyscraper.

And to start with, China was a positive story for Britain’s steel industry. As it expanded over recent decades it initially didn’t produce enough steel of its own to satisfy its seemingly limitless domestic appetite for steel – from Chinese construction to Chinese cities desperate to expand, to Chinese manufacturers pumping out goods around the world.  It became an important destination for UK exports.

However, gradually the country has built its own steel industry – and what an industry. Since 1980 China has gone from producing 5% of the world’s steel to making more than half of it – just over 800m tonnes.

Now, with Chinese demand tailing off in the face of their own economic slowdown, that steel needs somewhere to go, and where it’s going is everywhere. The Chinese are accused of “dumping” that excess steel on global markets, selling it for less than it costs to make. As a result, the steel price has collapsed in recent years, wiping out margins for UK steel manufacturers and contributing to the industry’s recent problems. Making matters worse is the fact that thanks to EU emission rules, UK steelmakers face what they describe as punitive energy costs.

For an industry which cannot compete on price (even if some of the UK’s steel products are of a higher quality than many other producers) the inevitable result is closure.

Based on the above you might feel rather depressed about the industry’s prospects. However, there are at least some chinks of light (albeit rather faint). The most important is that China is starting to cut back its production. Last year Chinese steel output fell for the first time in a quarter of a century. Indeed, hopes that this reversal could continue have pushed the steel price higher in recent months, helping to repair margins. The EU is also pushing ahead with anti-dumping measures, increasing tariffs on steel imports from China although, say critics, nowhere near enough to offset the impact of China’s influx.

So there is still hope for UK steel. Over the past half century the industry has become a kind of economic football, nationalised by Labour in 1949, privatised by the Conservatives in 1952, nationalised by Labour in 1967, privatised by the Conservatives in 1987. So what happens next is anyone’s guess – though one would presume the Tories would be reluctant to do what Labour have done repeatedly and plough on with a nationalisation, temporary or otherwise. But it will be a tough decision.

A few decades ago the world’s steel market was comfortably dominated by one giant which produced about double what the US, the next biggest contender, did. That giant was the Soviet Union; after the Berlin Wall fell, so did its steel output, leaving more room for everyone else to compete. Remember that the economic backdrop is unpredictable – nowhere more so than for steel.