Britain’s steel industry is on the brink of collapse and a lot of people are blaming China for its glut of production, pushing down prices and making it impossible for UK companies to do business.
But it’s not just China you have to blame for the demise of Britain’s steel industry — it is also Europe.
Steel prices have fallen to their lowest levels in 12 years and a range of British companies are struggling to survive. This is because prices in Europe and Asia are so low, Britain can’t compete. It’s just cheaper to import it in because it’s too costly to produce it in the UK.
On the flipside, falling global demand and a strong pound makes steel exports relatively more expensive. Britain is in the worst spot, right now.
The 98-year-old Redcar steelworks in the North East closed down at the expense of 2,200 jobs and Tata Steel is allegedly going to announce around 1,200 job cuts at its plants in Scunthorpe and Lanarkshire. Meanwhile, parts of Caparo Industries’ steel operations are going into administration and 1,800 people are set to lose their jobs. It’s an utter bloodbath.
“We have had a succession of ministers, and now the prime minister, saying that they will ‘raise’ the issue of Chinese steel dumping, which we know is impacting on the UK steel industry and the global steel price,” said Roy Rickhuss, general secretary of the trade union Community.
“The prime minister needs to do more than ‘raise’ the issue. He needs to tell the Chinese premier what action he’s going to take to stop Chinese steel damaging the future of a vital foundation industry in the UK.”
China’s crude steel production over the last decade had exploded, bringing hundreds of millions of tonnes more per year to the market.
“It is clear that the steel industry has, for the time being, reached the end of a major growth cycle which was based on the rapid economic development of China,” said Hans Jürgen Kerkhoff, Chairman of the Worldsteel Economics Committee last week. “Combined with China’s slowdown we also face low investment, financial market turbulence and geopolitical conflicts in many developing regions. The steel industry is now experiencing low-growth which will last for the time it takes for other developing regions of sufficient size and strength to produce another major growth cycle.”
Worldsteel Economics Committee forecasts a 2.1% drop in steel demand in developed economies this year. A drop in demand means exporting is difficult. This is on top of lower Asian and European steel prices remaining low.
Take a look at how the UK steel industry is made up:
In tandem, Britain’s dependence on Europe, not China, for imports means the UK is more exposed to lower European prices:
But Foreign Secretary Philip Hammond said this morning that “it’s wrong” to blame only the Chinese the glut in steel production pushing down prices.
“That’s a problem, but it’s not only the Chinese,” he said on the Today programme. It’s true, Germany has had a healthy and steady growth in steel production over the last few years.
Earlier this morning on BBC Radio 5’s Wake Up To Money programme, Peter Brennan from Steel Business Briefing highlighted how “the real competition” comes from European suppliers, “who are helped by the euro’s relative weakness against the pound.”
He added that higher business costs are forcing Britain into an un-competitive position. For example, the British government’s business rates are around 10 times higher than competitors’ in France and Germany, according to UK Steel.
Basically, Britain is in the worst spot of them all, and right now, and companies are finding it exceptionally difficult to produce or export steel in order to make any money. British steel companies also don’t really have the support of the government like Germany or France to keep rates low. So really, UK is better off just closing everything down.