Steel is not out of the woods yet


    Although the storm had been brewing for many months, it was a year ago the public first got wind of the crisis battering Britain’s steel sector.

    There had been rumours in Redcar for months. But it was local MP Tom Blenkinsop who put steel on the national agenda, tweeting that the SSI plant could be sold.

    “Locally there were stories of wages and bills not being paid,” says Blenkinsop, a former official with steelworkers’ union Community. “We knew something was going on, but if you asked most British people, they probably weren’t aware this country had a steel industry.”

    A month later it was headline news when the SSI plant went into liquidation, despite David Cameron having pledged that the Government would do “all it could” to save the 2,000 jobs at the plant.

    Less than a month later Caparo Industries went into administration, throwing another 1,700 jobs into doubt. Industry giant Tata Steel, which had quietly made smaller rounds of redundancies in previous months, then announced 1,200 jobs were going at its Scunthorpe site, and that it was closing two steel mills in Scotland.

    The bad news kept on coming. In January Tata said it would cut another 1,050 jobs, the bulk of them at its sprawling Port Talbot site, reported to be incurring daily losses of £1m.

    Days later, Sheffield Forgemasters, announced it was cutting more than 10pc of its 750 staff.

    A host of factors lay behind the carnage. Global overcapacity caused by a slowdown in China meant the country’s largely state-backed mills were dumping excess production abroad, with Europe a favourite target because it was slow to react with trade tariffs, which were weak anyway.

    European steelmakers were also struggling with high costs compared with their Chinese rivals. Sheer scale – China is responsible for more than half of worldwide steelmaking capacity of 1.6bn tons a year – meant Beijing-backed plants were able to produce steel much cheaper than in Europe.

    Finally, British steelmakers laboured under conditions European rivals were not fettered by. According to industry association UK Steel, the most punishing of these was green levies that pushed up already high power prices. Weak action to block dumping, a tax regime that discouraged investment in equipment and a British procurement system that did not focus on buying domestic steel exacerbated the matter, the trade body said. It produced a list of key “asks” of the Government.

    Just when it seemed things could get no worse, Tata took a £866m write-down on its British steel business, then stunned the industry by announcing in March it was selling its entire UK operation. This placed 15,000 jobs in jeopardy and twice as many in the supply chain.

    At the time, Gareth Stace, director of UK Steel, called the situation “a perfect storm”.

    Bidders lined up for Tata’s UK operations with the company tight-lipped about the sale process.

    With the crisis dominating the headlines, the Government pledged hundreds of millions in financial support and an offer to take an equity stake of up to 25pc in the business.

    However, the £15bn pension scheme and £500m deficit that came with Tata’s UK steel business proved a stumbling block for buyers. With the sale process largely stalled, the crisis began to fade from the headlines.

    In June, there was positive news. Turnaround investor Greybull bought Tata’s Scunthorpe steelworks for a token £1, announcing it had secured £400m in financing to invest in the plant and had “no plans” for any cuts to the 4,800 workforce.

    Crucially, Peter Hogg, commercial director of the business, added that the plant had been profitable “for some months”.

    The crisis in the sector seemed to be easing, with the EU placing tariffs on imports, and with stronger demand in China meaning less steel being dumped abroad, as well as helping to lift global prices.

    That effect was felt by the other steel companies, with Tata understood to have edged back into the black. The positive sentiment grew as it was thought the company might even retain the UK business.

    But steel fell down the news agenda as the Brexit referendum neared, and in July Tata halted the sales process, saying it was considering a merger with ThyssenKrupp, though the smaller speciality and pipe business in the north of England would be sold.

    At the end of August the Port Talbot plant was understood to have made a £5m profit and Liberty House, the industrial and commodities group which was a potential buyer for Tata, indicated it was close to restarting production at two Scottish mills it had already purchased from Tata.

    The positive news might indicate that the crisis had ended. Not so, according to Blenkinsop. “Other crises are occurring and they’ve taken over,” he says. While Greybull’s purchase and turnaround of Scunthorpe is, he says, a “good example of what can be done with the British steel industry given time”, the industry is still struggling.

    The pressure has also been eased by tariffs, and the Government’s promise to ease the green taxes on power.

    “There’s definitely hope,” the MP adds, but warns that Britain’s exit from the EU might be problematic. He’s also worried that unless a resolution is found quickly, a lack of new staff entering the industry could cause it to die out naturally in a generation.

    “The average age of a steelworker is 45,” the MPs says. “Without the investment so more people come in to the industry there’ll be no one left with the skills.”

    Steel is still in dire trouble. If anything there’s a deeper threat now. Before, we worked with Tata and knew what was going on, but now all communication has broken down. That means the workforce have lost confidence in management and are frustrated

    Roy Rickhuss, general secretary of Community union, is particularly concerned about developments with Tata. “We’re screaming as loud as we can to get the message out there that while things have gone quiet, they haven’t got much better,” he says. “Steel is still in dire trouble. If anything there’s a deeper threat now. Before, we worked with Tata and knew what was going on, but now all communication has broken down. That means the workforce have lost confidence in management and are frustrated.”

    Rickhuss describes a poor working environment for thousands of staff facing uncertain futures. However, he does say that global economic conditions have eased the pressure.

    Taking a more measured view is Tata. The company said in a statement that while it “welcomed progress since last year’s steel summit… much is still to be done to create a level playing field and forge a long-term, sustainable future for the industry”.

    The company applauded the fact that plans for an industrial strategy are at the fore of Government’s thinking. But it warned “there is no silver bullet for the conditions we face and only when all of the asks have been implemented in full will they begin to pay dividends for the UK steel industry”.

    Sources close to Tata are less optimistic about whether the company – and even steelmaking – is viable in the UK. “There are still massive issues that need resolving,” said one person close to the company. “It’s difficult to see whether the company has a future in the UK with the pension scheme still there.”

    Although novel – and sometimes controversial – suggestions have been made on how to tackle the 135,000-member pension scheme, including cutting the rate at which benefits accrue, it remains a huge hurdle.

    A possible tie-up with Thyssenkrupp also worries many in the industry. While Tata looks likely to sell its speciality and pipe businesses, which account for about a third of its 11,500 UK staff, this leaves the remainder – and the Port Talbot plant – in jeopardy.

    Tata’s Dutch steel works in Ijmuiden is more efficient than the South Wales plant, and Thyssenkrupp has its own modern plants. Industry experts believe that, with unused capacity already, Port Talbot could be excess to requirements.

    Slightly more optimistic is Graham Honeyman, chief executive of Sheffield Forgemasters. The company has recently won some major international contracts, including parts for new US submarines, and the business is diversifying.

    But, he warns, “there is still intense global economic pressure, every contract is a hard-won battle”.

    Other UK manufacturers have got a boost from the collapse of the pound after Brexit, but the chief executive warns that this is a double-edged sword. “The fluctuation in currency is not a straightforward win,” he says. “Although a weak pound improves the value of our products, it has an adverse effect on raw material costs and the rise in UK exports has also seen the pound rally.”

    Despite being one of the few sources of hope for the sector, Liberty House chief Sanjeev Gupta is also downbeat about currency moves.

    “A weaker pound is a reprieve but the industry is not 'saved’,” he says, adding that many steel companies have large inventories meaning they have yet to be hit by the rising cost of raw materials. “Last year was the lowest point in the market and, although prices have risen, nothing has fundamentally changed.”

    However, he believes the UK steel sector has a future, given appropriate policy support from government. “Britain is a mature market yet we import 80pc of the steel we use,” says Gupta. “That situation does not occur anywhere else in the world, it’s a crazy situation. There’s a clear opportunity.”

    Government, seemingly having been caught on the back foot by the crisis, says it has been at the forefront of leading EU action on dumping, and has delivered a cut in green levies (although UK steel producers still say they face some of the most expensive power in the world).

    But developments in the UK steel sector have encouraged the Government, with a spokesman at the Department for Business, Energy & Industrial Strategy adding: “The sale of Tata’s operation in Scunthorpe to British Steel, who have since hired more people, shows the sector can remain competitive with the right investment.”

    At the heart of the storm that hit the industry is UK Steel’s Stace, who became the voice of the industry as it regularly led the news. Looking back on the past year he admits “there were many times it looked like the beginning of the end of British steel making”.

    While the drumbeat of mass redundancies has stopped, he warns it would be “incredibly naive” to think that a weaker pound and higher steel prices mean “all is well with steel”.

    “If anything, the global market fundamentals worsened, with countries such as China exporting steel at record levels and showing no signs of slowing,” he says. While relief on green levies is helping, Stace says “the job is only half done” on delivering the industry’s key asks, and Britain’s steel industry is “in danger of sliding back to those dark, dark times of a year ago”.

    But it would be wrong to write Britain’s steel sector off. The message from the industry is not that they want favourable treatment, just a level playing field with state-subsidised imports being hit with realistic trade duties and energy costs on a par with competitors. That the sector has survived so long in the face of these challenges is testament to its grit.

    And Stace says he is encouraged by the change of ownership in the sector, with domestic companies increasingly represented, rather than foreign behemoths.

    While the crisis facing Britain’s steel sector isn’t over, increasingly those facing it are fighting on a home front.

Source: telegraph