THE BLOG

The Sentiment and Reality of British Steel

06/04/2016 11:53

Tata's decision to pull out of the Port Talbot plant has undoubtedly created political panic and febrile media chatter over the last week. Many blame David Cameron's government for being habitually reactive and unable to give long strategic thought to crucial national assets, such as the capability to produce steel. Additionally, the historical resonances are obvious; once British steel made the railway tracks, bridges and dreadnoughts that enabled it to govern an empire. The chimneys and furnaces have all but gone. The Teeside and Sheerness plants have closed. Some see the threat of closure at Port Talbot as the loss of yet another aspect of Britain's once proud manufacturing pedigree.

Yet much of this is sentiment. I must admit that I do not see any future for steel production in Britain of the type of that has sustained the Port Talbot plant. In some ways this is a scenario similar to the demise of British coal production and shipbuilding a generation ago. Modern processes and foreign competition have eclipsed British steel.

China's production is so vast that it dwarfs all other producers. Now, with China's GDP shrinking, it needs less steel and has flooded the international market. For example China produced 804mt of steel in 2015 (almost 18mt less than in 2014), yet exported 111mt in 2015 (against 93mt in 2014), or exactly 18mt more. This is more than 1.5 fold of the total British steel production in 2015. With such statistics, all competition is compromised but plants such as Port Talbot suffer the most.

This is because for the last ten years or so China has revolutionised its production processes. It now has some of the best mills in the world, making high quality steel, efficiently and cheaply. The manpower costs are a fraction of plants in the west such as Port Talbot. British energy tariffs are high and labour is expensive. The blatant truth is that Port Talbot is an antiquated plant producing ferrous steel that has an global excess capacity of 700mt. No amount of Saudi, Thai, Indian or government money will be able to address this stark reality. As China is dumps its steel it is no surprise that foreign investors are running away from the UK.

In reality there needs to be a complete reappraisal of Britain's strategy in steel manufacture. This is where the question of steel as a nation's essential resource comes into play. Britain will always need specialised steel for defence and other strategic uses. Ferrous steel is no good for defence or high precision products. Such products need low capacity, highly specialised mills. Yet this is exactly what the best modern British foundries and forging shops already do. If anything there needs to be an expansion of this type of high end manufacture.

There is of course the human cost to the closure of such long established centres of production. Unlike the contentious and long lasting response of British governments in the 70s and 80s to the reality of international competition, there should be no excuse this time in putting in place the right packages of regeneration and retraining. This is another crucial responsibility of government. Yet it is also time to slice away all sentiment and to stop hankering after the industrial identity of an age that has past.

Mohammad Zahoor

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