The word “crisis” is used all too often in the media. Whenever there is a spot of trouble, out they come with the “crisis” headline. However, this is perhaps the only word applicable when describing the perilous situation UK steel finds itself in right now.
You will have had to have been hiding under a rock to avoid the news that broke from Tata Steel on Tuesday evening as they announced that they were putting up for sale the entirety of their UK business. Industry and workers expected some bad news coming from their board meeting over in India, but not an announcement on this scale. It has shaken an already unstable industry.
What we know
Some of the facts and figures coming out of this tragedy are staggering. For example, the highly covered Port Talbot plant in South Wales is losing a massive £1m per day. Tata as a group has been losing over £300m per year on it’s UK business. The Port Talbot plant hasn’t made money in over 8 years.
We also know that up to 40,000 jobs are now at risk. If Tata cannot find a buyer and the Government chooses not to put a bailout package together, then this would have a devastating effect not just on the steel industry, but on all other industries reliant on steel – this would include our own window and door sector.
What are the options?
There are a few options on the table at the moment, all of which do not look that promising.
The first option would be nationalisation of the sector. However, Business Secretary Sajid Javid has already ruled this out, saying that this is not a long term solution and would therefore not provide a long term fix. This did not go down well with Labour leader Jeremy Corbyn.
The second option would be to impose higher tariffs on imported steel, namely cheap Chinese steel which has contributed to the industry’s problems. However, the UK would have to go to the EU to negotiate this and this is something that would take time. A commodity that this scenario simply does not have. Tata is seeking a swift sale and has already said that it is not prepared to give an indefinite amount of time for the Government to find a solution.
The third option is to let market forces take care of it. This would mean leaving Tata to find a potential buyer, of which there aren’t that many. There are a couple of companies apparently looking at buying select parts of the business, though this is not yet a done deal.
But when we think about this from a business perspective, how attractive is a business that loses millions upon millions of pounds per year? Most companies and Governments wouldn’t be too excited about buying such a business.
How did we get to this point?
A number of factors have combined to create this situation. The most talked about right now is the “dumping” of dirt cheap Chinese steel onto the world’s markets due to an oversupply of material caused by their economy slowing down. This is seriously undercutting the costs of the steel made here. And business is business, companies who need the raw material will always go for the cheaper option so long as the quality is good enough. Patriotism won’t win that battle.
Manufacturing is still not what it used to be. So many other industries have since recovered to surpass levels before the Great Recession in 2008. Manufacturing has not. When this sector is struggling, demand for raw materials like steel drops.
High energy costs also have a part to play in all of this. We pay more for our energy than any other country in Europe. This increases the cost of production for manufacturers who have to pass those costs on to their customer.
It’s a perfect storm. A storm which we have done absolutely nothing about.
A sign of the times
For me, the state of the steel sector in the UK can tell us a lot about general manufacturing in this country.
We have manufacturing to become horrifically expensive in this country. High energy costs, EU directives, lack of tariffs on imported cheaper products and a weak domestic economy has allowed for conditions that make importing cheaper than producing our own products here.
The coal industry is a good example. We now import coal from around the world, including a great deal from Russia, because it’s way cheaper. Think about it. We’re importing coal from thousands of miles away because it’s cheaper than digging it up out of own ground. It’s ridiculous. Yet, that’s the situation we find ourselves in.
Steel has now gone the same way. If Tata cannot find a buyer for it’s UK business and the Government does not step in, steel manufacturing will disappear from the UK for good.
Should the worst happen, there will be two impacts; the immediate and the aftermath. The immediate impact of course would be job losses in the tens of thousands. Unemployment would rise quickly in areas of the country which have been built around this industry. Redundancy payouts would pile up and it will cost many billions to shut down and clean up defunct plants around the country.
The aftermath is perhaps even worse. Towns and cities built around the steel industry will suffer badly. GDP figures in those areas will fall. Other businesses associated with steel will lose out on vital business and would likely face closure themselves. Associated industries would suffer too.
There is a wide economic impact. For example, the Government’s HS2 project needs steel. If there is no steel to make it, what happens to that project? It can’t be shelved, so the Government would have to use imported steel, which politically would be a disaster. There is even a theory that our national security would be at risk without it.
Be in no doubt, our own window and door sector would suffer too. Many window and door products installed in people’s homes are reinforced with steel. What would be the impact for our industry if we lost this vital product?
Hardware suppliers would be at a loose end also. We’d have to resort to using imported steel. Better for business, not for British jobs.
In the end, a clear decision will have to be made. I am all for saving British industry and British jobs, but not for setting precedents that cannot be replicated across other industries or that do not solve the root cause of the issues at hand. That is why I don’t believe a bail out by the Government – which would have to measure in the billions – will work. I know some may not agree with that stance, but nostalgia and patriotism must not get in the way of logic.
There is a turbulent time ahead for the steel sector and wider UK manufacturing.