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Thursday, 31 March 2016

Does the UK need a steel industry?

It's a genuine question and I don't think I know the answer - does the UK need a steel industry? Economics suggest that low factor costs will dictate where manufacturing takes place; iron ore, limestone, cheap power and cheap labour should determine the location of this industry, surely? Unless of course 

(1) we need a domestic steel industry for reasons of national defence or national security
(2) we have competitive advantage in producing steels of a quality or type unavailable elsewhere
(3) competition is distorted by state subsidy, tariffs or dumping by our competitors

The least legitimate reason for government intervention is of course for reasons of political convenience for the government, but which I suspect will be the real reason for any rescue. 


DeeDee99 said...

I think it would be foolish to let the UK's steel industry die.

Cameron will be spurred into doing something to save it because his sole policy at the moment is to win the Referendum to keep us in the EU and the media/leave campaign are making it clear that it's the EU which really calls the shots.

Barnacle Bill said...

If only the question was as simple as the three options you posed Radders. I'm very much torn between what my heart say, which is demanding we have a British Steel. Yet my head whispers perhaps it's better we let the old industries fade away to concentrate better on more modern technologies.

However, these are very muddied waters at the moment, with both the quisling Cameroon & cunning-but-clueless Osborne brown nosing China. I'd better not mention the elephant in the room just across the Bristol Channel at Hinkley Point. One of Boy George's vanity projects.

On top of which we know that the Dismal Duo will throw everything, including the kitchen sink, into winning the EU referendum. So they will probably throw Tata a lifeline for now. Only to cut the rope once the vote is safely out of the way.

So yes I think you're right Radders a very political temporary solution is being hatched.

anon 2 said...

Strange question, Raedwald. We've had one for a very long time, and have done quite well at it. So what happened ... they all came along and decided they're better at it than us inferior Brits? Or... do they want us to have nothing left to trade with when we do get rid of the euSSR?

After all, if we have no industries to employ the invaders, whatever are they going to do with themselves?

Anonymous said...

This is the problem with having politicians who are bedazzled by the sparkling jewels being offered them by international bankers and corporations...

They are the politicians that have hijacked this country more of less since Heath... Thatcher had her eyes opened and then she was stabbed by some other corporatist politicians just as she was about to act.

And in reference to your other post today, it is another reason to get out of this damnned European Union.

Tata is an example of the kind of international corporation that has absolutely no qualms about about ruining people's short lives... the company goes on, and several thousand ordinary folk get shafted along with their young families.

Meanwhile our "remainian" politicians won't tell the truth, they will possibly witter on about creating jobs... but they won't remove the mote from their eye!

Of course we need big industry, like ship building, mining, and steel making....

Formertory said...

I'm sure someone said this about a variety of industries. Candlemakers (nod to Frederic Bastiat there). Wheelwrights. Bonnet makers. Blacksmiths

Tim Worstall made the point a while back that what we don't need any more are blast furnace steelmakers who start with ore and end with iron or steel, because there's so much cheap steel around that recycling (so cutting out the blast furnaces) provides more raw material than the world demand requires. That's why Redcar closed - in addition, IIRC, the EU paid Tata some humungous sum of money as grants to close the plant and its blast furnaces because it reduced atmospheric pollution and made the EU numbers look better. Tata of course simply transferred production to India and off the EU's polluter list.

Does the UK need steel? I go with your second point; some niche product of a quality or properties not available elsewhere. Even then, give it 10 years and there's a good chance that'll have been superseded, too. Or the Chinese and Indians will have caught up.

Anonymous said...

I took over a 45 acre engineering works that had been shut by a French owned multinational and reopened it with a new business model. Ten years later it is still there and thriving, with 250 real skilled jobs, engineering apprentices and a great long term future. It can be done but you need to start afresh without the dead weight of legacy management, workforce and politics. Yes the place employees fewer employees than when it closed but kids in Eastleigh can still get real jobs in the same industry as their grandfathers and at the same place.
May be we don't need to turn ore into general steel but we do need the treatment and processing skills and capability, unless we are happy to import a key element of our modern life. Forget strategic interests, think balance of payments and skills base.
One thing is certain, our leaders and their advisors have no knowledge or experience of industry so will have no clue what to do, except in order to gain themselves a political advantage.

Wildgoose said...

Yes, but we need a specialist steel industry more than basic steel.
As an example, high nickel steels that are more suitable for nuclear reactors, (they can withstand greater radiation that would make ordinary steel dangerously brittle), and so on.

The main cost isn't the employees, (automation has seen to that), it is the huge energy requirements. And thanks to Miliband supported by Clegg/Cameron we have stupidly expensive energy.

In any event though, the action that the Government can take is constrained by EU rules that regularly hamper the UK but somehow never seem to do the same to other members of the EU.... Time to leave.

Cuffleyburgers said...

the real question is not "does Britain need a steel industry". It is "what is it that makes large swathes of the existing industry unprofitable and can we as a government remove any artificial obstacles to heavy industry?"

Like Barnacle I am torn between a reluctance to see something die and acceptance that the way of the world is industrial decline and renewal.

However let's not forget that the cheap competition is highly subsidised from China which is not going to last for ever - not even the Chinese can keep chucking tax payers' money down the toilet until doomsday. After which prices will rise. Energy costs in Europe and the UK in particular are artificially high due to disastrous government policy.

In my view therefore the correct strategy a) is to ensure that energy costs are brought down to real world levels by repealing the absurd energy and climate change act and all the rest of that disastrous nonsense and b) to provide whatever assistance short of nationalisation, subsidies or tariff barriers to effective re-organisation to concentrate for example on the production of speciality steel for niche and high tech manufacturing.

A lot of jobs will have to go unfortunately for which the unions also deserve their share of the blame but handled intelligently it need not be a disaster.

Of course I doubt any of us have much faith in Cameron or still less Osborne to handle anything inteligently, so I am not optimistic.

Dave_G said...

In a predictable and stable world we could get our steel (or any mass produced, low cost materials) from anywhere in the world BUT should global economies suffer decline (as they seem to be) then there is chance that this policy leaves you open to being ripped off or, worst case, left without it altogether with the attendant consequences that result.

Abandoning the steel making industry altogether would be too short sighted in these dangerous and uncertain times - mothballing it would be the safest option even if it was only to tell the competition that 'mess us around and we'll make our own'.

Then, of course, there's also the threat of war....

Dan said...

What is going on is that the world has changed. Specifically, about 20 years ago a US company called Nucor worked out how to purify any scrap steel back into something identical to newly produced steel (cars use leaded steel, which as it is contaminated with poisonous lead isn't good for anything but making cars out of).

About 10 years ago, a lot of Chinese companies worked out a money-making wheeze, the net effect of which was that they started stockpiling scrap steel like mad. Just recently, the loophole the wheeze relied on was closed.

As things stand now, China has lots and lots of scrap steel and the capacity to recycle this scrap, no matter how contaminated it may be, into pure raw steel. As the only way to recoup money is to do just this and sell the steel on the open world market, this is exactly what the Chinese are doing.

The laws of supply and demand mean that the price of raw steel has fallen sharply. In a sane, sensible world politicians would be cheering at the sudden drop in the cost of raw materials as this then reduces production costs and makes their exports more competitive. Instead, most politicians would much rather piss away someone else's money to prop up industries that are not only not competitive now but which will NEVER again be competitive ever.

Anonymous said...

The mistake we always make when foreign owned businesses close the UK subsidiary is to not play the bastards at their own game.

One method of doing this is to take over their assets without compensation as prepayment for the social security costs that closure of their plant will cause us.

We should also add in costs to any product that they intend to sell in the UK in future.

So for example, when Peugeot closed a factory because it was more expensive to make cars there than in some cheap part of the EU, we should have instantly put a tax of maybe £500 to £1000 on all of their cars imported. The same goes for Ford with their transit vans moved from Southampton to Turkey, and their range of cars to factories in Spain and Belgium.

The next thing we should do is to insist on British made products exclusively for government contracts. It irritates me to see coppers in BMW's. Let's have ships built in the UK again, and I'm sure the army if it was a lot bigger could use a lot of tanks.

Formertory said...

@anonymous: taking assets without compensation is called "theft". It's unlikely to persuade any companies to set up shop here whether, British or otherwise.

Tariffs are simply an invitation to markets we export to, to introduce tariffs on our goods and services; everybody loses.

Shipbuilding in the UK went East because shipbuilders here built poor ships, over budget, and delivered late. The management was awful, and the unions destructive. The workforce was bolshie. Not surprisingly, people wanting ships went elsewhere. As for the army needing more tanks - what for? Always fighting the last war........

Anonymous said...

Some excellent posts, all of them on here today, I tend towards the post from cufflyburgers, silly handle but useful brain and then some!

Steel yes, but a much more efficient organization - how to do that, is the big question?

Britain, does need some residual steel making capacity, high end grade steel will always sell if we don't need it ourselves.
Environmental considerations be fucked, there is no existential threat from CO₂ of the man made variety - that's all an egregious political fabrication - to keep us all in line and fretfully taxed. Though, until we remove ourselves from the leg irons of the Brussels forge-ry-meisters or.......... green it is and steel there won't be.

The wider point here is:

Britain, has become a place where putting bits together for other countries has become our main function and with the major profits going offshore, elsewhere. Absolutely, this and the previous administrations have presided over a loss of manufacturing which is now in precipitous decline.
'Decline' is a contentious concept, some, if not all of our decline has been managed incompetence and willful neglect, because our government doesn't see businesses who manufacture stuff as key to the economy. FFS, the only trouble with that attitude is, any longer, if no one is making aught in Britain - no fucking money is made, and hence is, why our balance of payments figures are in the red and turning dark crimson.

You, we, our government kids (are stupid beyond belief) themselves if, they think that, what are called our EU partners and allies are not protecting their own industries.
Having said that, there is a lot we could do, not least lift the burden of taxation and therein green levies on large and small operations, from obscene costs of business rates, recycling and waste disposal impositions, H&E, employment legislation, to carbon floor prices - INDEED: we are strapping our own economy! Furthermore, Osborne is as bad if not worse in this respect than was MacRuin.
Don't get me started on education, but it would help greatly if kids came out after 11 years of state funded education being able, efficient at, can do, add and subtract, write, put together a string of some cohesive sentences. As it is rather, kids leave skool and able to rattle on about; alien religions, green boondoggles, equality for slaves and how Britain and it's empire somehow imposed eevil and bad fings on the world. Hmm, when actually all of our former colonies have done it all by themselves and where the Sudanese will tell you, the only real peace they've ever had was in the 80 odd years of British colonial rule.

It has to be said, that, we are (HMG is), our own worst enemies and not far behind, the hand on the tiller is Brussels tattoed (Frogs and Krauts) steers us towards the rocks of economic calamity and being totally washed up.
HMG, the government are always is the problem never the solution. What we are in need of, and greatly at that, less not more (civil servants, quangos, local, central government departments and executive ministers) of it and the best way to guarantee that, is to get out of the EU.
Though, in the first years it will be difficult to weigh some of the benefits of being out but, we would immediately notice the benefits of small lean administration and governance. In, 5-10 years into the future and out of the EU - we would be flying. It needs to be said, in the EU; we are fading to death, dying out but we could be once again, a free and great Britain and the diaspora would return but massive plant steel manufacturing............... will have gone.

Anonymous said...

One thing I did wonder was whether Tata should offer to build a small nuclear power plant at Port Talbot. Must be cheaper than Hinkley!
Tongue firmly in cheek of course

Anonymous said...

Some random thoughts on this:

1) Why are the same group of politicians and lobbyists who set the conditions for this (30 years of industrial, defence and environmental policy) surprised when it all comes together and actually has the effect that they planned?

2) The world market for mild steel has been pretty much bombed out by China.

3) The specialist steel makers in and around Sheffield are doing rather well - having gone up the value chain and making high quality niche products (High Nickel Steel for nuclear systems being but one). Ships and tanks are not made of mild steel.

4) It would be far better in the long run to kill this off quickly and pour resources into retraining, and even relocating the workforce into new jobs. Creation of a special low tax enterprise zone would have jobs back.Painful in the short term, but kinder in the longer.

5) I hope with cheap steel, we are making the most of it for infrastructure projects.

Budgie said...

We need a steel industry making from mild to exotic alloys for the following reasons:
- strategic (so we are not totally dependent on others)
- utilitarian (we use the stuff all the time, and no, it's not going out of fashion any time soon)
- quality (read "Badly made in China" - and in other places too)
- employment (what are we going to do else? - take in each others washing?)
- rapid response (shipping half way round the world is inflexible)
- balance of payments (we import too much stuff already)
- skills (if you don't use it, you lose it)
- seeding (research and development spinoffs)
- security (in time of war we will be sunk without it)

Our steel is currently more expensive for two reasons: our electricity costs are double our competitors; the Chinese have over-invested in steel making capacity, so sell cheaply to recoup at least some of their investment. The first doesn't have to be (the CCA 2008 could be repealed / we could exit the EU). The second won't last. And then where will we be?

G. Tingey said...

Yes, Yes & Yes

Money to bail out the bankers, but not steel workers.
Oh & "It costs a million a day" - well we're paying £32 million a day, nett into the EU for nothing .....