Sanjoy Sen is a chemical engineer. He contested Alyn and Deeside in the 2019 general election.
Tata Steel has just confirmed the news that Port Talbot has long been dreading. Following the rejection of the Unite union’s phased transition to clean steelmaking, the town’s two blast furnaces will close this year. Faced with losses of a million pounds a day, Tata will replace these with an electric arc furnace (EAF) fed by scrap metal – sadly, at the expense of 3,000 jobs at the vast Margam works.
This technology switch has consequences beyond South Wales. EAFs produce steel at lower cost (and with lower emissions) than traditional blast furnaces reliant on raw materials (like iron ore and coal). But as EAF’s share of world steel capacity approaches 50 per cent, global scrap supply looks set to tighten, driving costs up. Ditching blast furnaces would leave us rare amongst developed nations in being unable to produce higher quality, virgin steels. No wonder everyone from trade Unions to the Conservatives’ own Northern Research Group is concerned.
So, what is the current state of the steel industry, here in the UK and abroad? And what options do we have, both politically and technologically?
A tightening market
Even in today’s high-tech, AI-enabled world, steel remains an economic cornerstone. Essential for key sectors such as automotive, machinery, and construction, McKinsey estimates some €83 billion in direct value added to Europe’s economy – alongside some 330,000 jobs.
But it’s long been challenging to make the stuff profitably. Supply has soared in recent years (especially from China) whilst European demand has remained subdued since the 2008 global economic crisis. Further plant closures are anticipated to address over-capacity. And sector problems have been compounded by rising costs: raw materials, energy, emissions.
A glut of supply
Back in the pre-internet 1990s, when advice for students was limited, I prepped for my British Steel interview by devouring endless stats.
From nationalisation in 1967, headcount plummeted from 250,000 to 40,000 in the early nineties. Painful re-structuring saw major sites closed: Corby (1979), Consett (1980), Shotton (1980), Ravenscraig (1992). But a competitive global player ultimately emerged. By 1993, British Steel was Europe’s number one and trailed just three rivals, all Japanese.
Back then, no Chinese manufacturer was even in the top 20. But as global supply ramped up, established competitors merged and sites closed. British Steel and the Dutch giant Hoogovens formed Corus in 1999 and were later swallowed up by India’s Tata in a 2007 takeover.
Whilst Chinese production has recently dipped, its output remains colossal, exceeding a billion tonnes in 2021. That’s more than the rest of the world combined – and dwarfs the UK’s 7 million. And with falling domestic demand likely to create greater exports, the UK (and others in the G7) rely on quotas and tariffs to stem the tide.
And as if taking on China wasn’t hard enough, running costs are also soaring. Raw material costs (iron ore, coal) have trebled recently. And UK steel is burdened by higher electricity costs, almost £100 per megawatt hour versus Germany’s £60, a worrying situation as we shift towards power-hungry EAFs.
Worse still, the cost of tacking emissions is now emerging as a major challenge. Steel is responsible for eight per cent of global greenhouse gases and the industry is under pressure to take action. With the global costs of steel decarbonisation estimated at an eye-watering £4.4 trillion, Western manufacturers will be hoping to charge a premium for a greener product. Or to benefit from carbon pricing impacting Chinese competitors which have so far been slower to respond.
How might we respond?
Rishi Sunak is likely to come under pressure to save Port Talbot jobs. But, in reality, governments are confronted by some tough choices. These range from allowing market forces to wipe out domestic producers through to nationalisation. We are not alone in facing challenges in steel: Nippon Steel’s proposed $14 billion takeover of struggling US Steel is proving controversial in Washington, raising national security issues.
Despite EU rules, state aid has been dished out pretty generously to European (especially German) steelmakers. Post Brexit, the UK has also opted to keep foreign owners afloat. That’s not just attributable to the 2019 red wall revolution: COVID-19 and geo-political instability have brought home the vulnerability of global supply chains.
Like Tata in Port Talbot, British Steel (now owned by China’s Jingye Group) sees EAFs as a route to survival. It proposes a £1.25 billion investment to replace Scunthorpe’s four blast furnaces (again resulting in significant job losses) and is looking to bring steelmaking back to Teesside following the closure of Redcar in 2015. But Tata has secured £500 million in government support and Jingye is in talks for a similar sum.
Backing cleaner routes to virgin steel could be an alternative. In Sweden, HyBRIT, a direct-reduced iron (DRI) process uses hydrogen generated from renewable power instead of coal-based coke. Steelmaker SSAB (not SAAB) anticipates commercial operation by 2026 but recognizes their “fossil-free steel” will carry an (unspecified) cost premium. And like EAFs, it has feedstock challenges. Nevertheless, with Tata looking to install DRI at a Dutch plant, Labour’s Stephen Kinnock has been critical that his Port Talbot constituency has been overlooked.
Back in 2022, the West Cumbria coal mine was signed off to the delight of Red Wall Conservatives. Needless to say, environmentalists have wasted no time re-launching their opposition, citing the plummeting domestic demand for metallurgical coal as a reason for Britain to ditch its blast furnaces. Fixing the steel industry will never be easy. But a spot of joined-up thinking wouldn’t go amiss.
Sanjoy Sen is a chemical engineer. He contested Alyn and Deeside in the 2019 general election.
Tata Steel has just confirmed the news that Port Talbot has long been dreading. Following the rejection of the Unite union’s phased transition to clean steelmaking, the town’s two blast furnaces will close this year. Faced with losses of a million pounds a day, Tata will replace these with an electric arc furnace (EAF) fed by scrap metal – sadly, at the expense of 3,000 jobs at the vast Margam works.
This technology switch has consequences beyond South Wales. EAFs produce steel at lower cost (and with lower emissions) than traditional blast furnaces reliant on raw materials (like iron ore and coal). But as EAF’s share of world steel capacity approaches 50 per cent, global scrap supply looks set to tighten, driving costs up. Ditching blast furnaces would leave us rare amongst developed nations in being unable to produce higher quality, virgin steels. No wonder everyone from trade Unions to the Conservatives’ own Northern Research Group is concerned.
So, what is the current state of the steel industry, here in the UK and abroad? And what options do we have, both politically and technologically?
A tightening market
Even in today’s high-tech, AI-enabled world, steel remains an economic cornerstone. Essential for key sectors such as automotive, machinery, and construction, McKinsey estimates some €83 billion in direct value added to Europe’s economy – alongside some 330,000 jobs.
But it’s long been challenging to make the stuff profitably. Supply has soared in recent years (especially from China) whilst European demand has remained subdued since the 2008 global economic crisis. Further plant closures are anticipated to address over-capacity. And sector problems have been compounded by rising costs: raw materials, energy, emissions.
A glut of supply
Back in the pre-internet 1990s, when advice for students was limited, I prepped for my British Steel interview by devouring endless stats.
From nationalisation in 1967, headcount plummeted from 250,000 to 40,000 in the early nineties. Painful re-structuring saw major sites closed: Corby (1979), Consett (1980), Shotton (1980), Ravenscraig (1992). But a competitive global player ultimately emerged. By 1993, British Steel was Europe’s number one and trailed just three rivals, all Japanese.
Back then, no Chinese manufacturer was even in the top 20. But as global supply ramped up, established competitors merged and sites closed. British Steel and the Dutch giant Hoogovens formed Corus in 1999 and were later swallowed up by India’s Tata in a 2007 takeover.
Whilst Chinese production has recently dipped, its output remains colossal, exceeding a billion tonnes in 2021. That’s more than the rest of the world combined – and dwarfs the UK’s 7 million. And with falling domestic demand likely to create greater exports, the UK (and others in the G7) rely on quotas and tariffs to stem the tide.
And as if taking on China wasn’t hard enough, running costs are also soaring. Raw material costs (iron ore, coal) have trebled recently. And UK steel is burdened by higher electricity costs, almost £100 per megawatt hour versus Germany’s £60, a worrying situation as we shift towards power-hungry EAFs.
Worse still, the cost of tacking emissions is now emerging as a major challenge. Steel is responsible for eight per cent of global greenhouse gases and the industry is under pressure to take action. With the global costs of steel decarbonisation estimated at an eye-watering £4.4 trillion, Western manufacturers will be hoping to charge a premium for a greener product. Or to benefit from carbon pricing impacting Chinese competitors which have so far been slower to respond.
How might we respond?
Rishi Sunak is likely to come under pressure to save Port Talbot jobs. But, in reality, governments are confronted by some tough choices. These range from allowing market forces to wipe out domestic producers through to nationalisation. We are not alone in facing challenges in steel: Nippon Steel’s proposed $14 billion takeover of struggling US Steel is proving controversial in Washington, raising national security issues.
Despite EU rules, state aid has been dished out pretty generously to European (especially German) steelmakers. Post Brexit, the UK has also opted to keep foreign owners afloat. That’s not just attributable to the 2019 red wall revolution: COVID-19 and geo-political instability have brought home the vulnerability of global supply chains.
Like Tata in Port Talbot, British Steel (now owned by China’s Jingye Group) sees EAFs as a route to survival. It proposes a £1.25 billion investment to replace Scunthorpe’s four blast furnaces (again resulting in significant job losses) and is looking to bring steelmaking back to Teesside following the closure of Redcar in 2015. But Tata has secured £500 million in government support and Jingye is in talks for a similar sum.
Backing cleaner routes to virgin steel could be an alternative. In Sweden, HyBRIT, a direct-reduced iron (DRI) process uses hydrogen generated from renewable power instead of coal-based coke. Steelmaker SSAB (not SAAB) anticipates commercial operation by 2026 but recognizes their “fossil-free steel” will carry an (unspecified) cost premium. And like EAFs, it has feedstock challenges. Nevertheless, with Tata looking to install DRI at a Dutch plant, Labour’s Stephen Kinnock has been critical that his Port Talbot constituency has been overlooked.
Back in 2022, the West Cumbria coal mine was signed off to the delight of Red Wall Conservatives. Needless to say, environmentalists have wasted no time re-launching their opposition, citing the plummeting domestic demand for metallurgical coal as a reason for Britain to ditch its blast furnaces. Fixing the steel industry will never be easy. But a spot of joined-up thinking wouldn’t go amiss.