UK steelmaking: A perfect storm of oversupply and lack of demand

Is there a future for steelmaking in Britain? The sad roll-call of job losses at steel plants around the country over the past couple of weeks is very real evidence of an industry in trouble but could it yet be saved?

Much has been written about the extra levies on energy prices imposed by our own government, as well as business rates which make production here more expensive than elsewhere. The government says it is considering easing some of these costs which would particularly help producers of commoditized steel products – they might have helped to save the Redcar plant, for example.

Yet some of the problems our companies face are global – and chief amongst them is oversupply. The world is making much more steel than it needs and that is distorting the whole market.

China is the main culprit – making for very unfortunate timing as President Xi Jinping is being feted at Buckingham Palace while his government is being criticized for making the problem worse.

China can now produce more steel in a year than Britain can in 50. Credit: ITV News

It’s not all China’s fault: in the heady rush to become a modern economy, the country has consumed huge amounts of building-block materials like steel and concrete to establish a modern infrastructure of airports and bridges, dams – even entire cities.

As well as buying materials from abroad, its own industry grew to satisfy the demand. China can now produce more steel in a year – 823 million tons - than Britain has made in the past 50.

tonnes of steel China produces every year.

The scale is quite extraordinary and as China slows down that pace of expansion, suddenly it is left with factories that employed almost 3.5 million employees in 2010 (making the sector China’s 11th biggest employer) in danger of idling.

Number of employees China hired in steelmaking factories in 2010.

Worried by the destabilising impact of unemployment the government is allowing the factories to make steel it doesn’t need which is instead being sold abroad, flooding the market and pushing down prices everywhere.

It’s called dumping: selling goods abroad for less than it costs to make them to meet your domestic, political needs. China’s steel exports are likely to be over a quarter higher this year compared with last.

The government says it is considering easing costs for steelmakers. Credit: ITV News

One manufacturer I have been speaking to today says bluntly “China is exporting its unemployment.” Andrew Cook, chairman of William Cook, a Sheffield company which makes steel parts for the mining sector, rail, defence and precision engineering customers, says our government should put pressure on President Xi to stop dumping – or certainly not to send it here.

“They could sell it anywhere,” he points out, although that approach and even tariffs to force the Chinese to stop, only postpone a more fundamental reckoning.

As he explains: the William Cook business is in better shape than some rivals and is “not losing money,” because it is diversified, with different types of clients around the world. But profits are still down 60 per cent from their peak in 2013 and he has just had to let a fifth of the workforce go.

British steel and manufacturing is really hurting. They're having a torrid time. They're in the middle of a perfect storm right now, very low commodity prices globally, not a lot of demand, incredible amount of competition, particularly from Asia.

– 'Master Cutler' Craig McKay, Evenort Ltd
Steelmaking is facing a perfect storm of low commodity prices, low demand and huge competition. Credit: ITV News

As painful as it is, he is adapting to what he expects to be a permanently lower level of demand now China has reached “quasi first-world levels of development.”

What needs to happen now, he says, is for China to accept this, too and allow its own capacity to shrink. Other countries in Europe will have to follow suit. Only when global supply has fallen will prices recover, allowing investment and development in the industry.

There remains a bright future for some parts of British steelmaking. Craig McKay, the Master Cutler who represents industry in Sheffield, and who is himself the boss of an engineering company, says our own companies will survive and thrive by aiming for the top end of the market, finding niche markets and specialisms.

We are where we are. There's still things that can be done and right now for the steel industry, I think the government should stop hurting them.

Time is running out if anyone's going to act. Now would be a good time.

– 'Master Cutler' Craig McKay, Evenort Ltd