Reading recent headlines, one might conclude that the days of UK steel production are numbered. With plants being closed or mothballed across the country, there appears to be a deepening sense of crisis.
Worse than that, some politicians and commentators give the impression there is little we can do about it in the face of global forces, especially Chinese steel ‘dumping’ on to world markets, as their own domestic demand slows down.
Well there is one thing we can do. We can stop fighting with one arm tied behind our backs.
I am convinced steel production, including liquid steel making, can be viable in the UK. We have sufficient actual and potential demand domestically to underpin the sector. All we need is equality in terms of our ability to compete with international rivals.
On the very day the government called its steel summit in the wake of the Redcar closure, our company Liberty House reactivated its mothballed rolling mill at Newport, South Wales, where we are now producing 50,000 tonnes a month of hot rolled coil (HRT), rising soon to 100,000 tonnes. One hundred and fifty skilled and experienced steelworkers employed by the plant, who had to stand down on half pay for two years, finally returned to their jobs.
The reason we can make this operation profitable is that, with almost 25 years’ experience trading metals worldwide, we can buy steel slab from diverse sources at the most advantageous prices and process it competitively for UK consumption.
But make no mistake, we would rather be melting scrap steel and making our own slabs as well, because that’s more sustainable, gives us more flexibility and provides employment for many more steelworkers. Our plant already has the furnaces needed for this process, so capital investment isn’t a barrier.
The reason we cannot do this right now is simply due to power prices. Energy costs are by far the most significant element in the melting of scrap, and UK energy prices are well above those of competitor countries. The principal contributor to this uncompetitive cost is a punitive carbon tax that is actually achieving the reverse of its stated aim in this case.
The UK has the highest carbon tax in the world. More than half the UK power price is made up of this tax, and power prices in Germany and France are half those in the UK. At present commentators are focusing heavily on the “dumping” of Chinese steel in our markets, but the reality is that most UK steel imports are actually from Europe, not China.
Of course, I support international efforts to reduce carbon emissions, and have even purchased a coal-fired power station next to our steel plant in Newport with the intention of converting it to biomass, while also pursuing other significant renewable initiatives such as a Tidal Lagoon.
However, the current UK carbon tax regime has produced the ludicrous unintended consequence of actually increasing emissions, while at the same time exporting British jobs.
Right now the UK exports large volumes of scrap to be converted to steel in other countries — for example Turkey — and steel produced from this is imported back to the UK. While the emissions may occur in another country, thereby helping Britain meet its green targets, the overall impact on the planet is negative due to the extra transport involved.
Admittedly the makers of primary steel, as opposed to recycled steel, do face some structural challenges in the UK but these problems are made significantly worse by artificially high energy prices.
The British VAT regime doesn’t help either. There is no VAT on steel imports from EU yet any raw material imported by a UK producer is subject to VAT. While this is eventually reclaimable, it presents UK producers with additional cash flow challenges European producers do not face.
Furthermore, if we’re genuinely seeking to reduce carbon footprint and produce sustainable energy competitively, why has the government pulled back from its promised support for the renewable sector?
It’s clear the government can do much to alleviate the problems facing UK steel without interfering with market forces. It has several fiscal levers it can justifiably use to enable the sector to fight back and sustain tens of thousands of direct and indirect jobs. In addition to carbon tax and VAT modifications, substantial business rates applied to this stressed sector could be exempted while we weather the storm.
No one involved in UK steel is asking for a leg up or a hand out from the state. All we need to make the industry get through this down cycle is a level playing field.
Source: http://www.ft.com/