Save Our Steel?

I should start this piece by saying, as I mention a lot throughout its length, that I’m not an expert on any of this stuff. It’s a thought experiment based on a pre-existing opinion, and it’s one that includes people’s livelihoods. I’m starting from the point of view that it’s the people and the locality that need support, not the specific business.

Today it’s been announced that Sahaviriya Steel Industries, a Thai steelmaking firm, is to close its plant at Redcar on Teesside. The company statement tells us that “poor steel trading conditions” make the plant unviable to operate, and that they are unlikely to improve any time soon.

Clearly, people are still using steel. According to the World Steel Association, global production increased by 3% in 2013, from 1559m tonnes to 1606m tonnes. SSI UK had the capacity to produce 30% of the UK’s steel, but lost £200m over the same year. Today’s statement mentions that this position improved over the following year, but without published accounts it’s difficult to tell exactly how much.

About half of the world’s steel is produced in China, and in February 2015 Chinese steel sold for about 70% of the price of that produced in Europe, according to figures from MEPS. I don’t know how much transportation and duties affect final costs to the end user, but that’s a hell of a gap to close if steel produced in the UK is to be competitive in a global market.

The focus of the local campaign has seemed, from the outside, to be on a Government bail-out of the loss-making plant. Many have repeated the point that a bailout would cost a fraction of the hundreds of billions of pounds provided to the banking sector since 2008. It would take someone with more economic knowledge than me to say whether the UK steel industry is as integral to the country as its banking system, even in proportion to the sums involved.

But at the time of the bank bailouts, I believed that, if possible, the Government should do what was necessary to support the essential function without rewarding the owners and shareholders who had made, or invested in, the mistakes. I don’t see any reason why SSI should be any different. For whatever reason, be it genuine market conditions, mistakes in management, or something else entirely, the company is not able to run the Redcar plant at a profit. It is a private company, responsible to its shareholders, and if it can’t see a way it is going to make money from an activity then it needs to stop doing it.

The Government’s responsibility is not to the company, or even to the steel industry, but to the people and the area. Could it, perhaps, reopen the plant, having bought it at a “fire sale” price from SSI? Leaving aside whether the current Government would do something like this, would it be a sensible policy?

The problem is, I wouldn’t expect this or any Government to be able to run a steel plant at any more of a profit than SSI, or Arcelor, or any of the other companies that do it for a living. If the state took over the running of the plant, we would have to assume that it would run at a similar loss. Those with more knowledge might tell us that there are obvious savings and improvements in competitiveness to be made, but looking from the outside I think it’s fair to take the current position at face value.

In this case, the Government would effectively be keeping it open as a social service. The facility exists, the trained people exist, and the logistics are in place, even if the iron ore which originally fuelled the local industry has long since been imported from elsewhere. Assuming no better performance than SSI’s latest accounts, the country would pay £200m per year to support the workers, their families and their local area. And at some point in the future, the same problems may well roll round again.

Could the annual £200m be better spent? At its most ridiculously simplistic, the quoted figure of redundancies is 1700. The losses at the steel plant would pay each of those people over £117,000 per year, without the need to run the plant. Adding in the 150 people made redundant at the South Bank coke ovens, and the 1000 contractors the Evening Gazette says rely on SSI for their income, the Government could still keep the plant closed and pay everybody affected £62,500 per year.

That won’t happen, of course. But it’s an interesting context when asking whether the Government should run the steel plant at a loss. And then there’s the environmental impact. Figures from Tata Steel suggest that UK production costs around a tonne of carbon for every tonne of steel, which means up to 3.6m tonnes of carbon arising from capacity production at Redcar. That’s less than 1% of the UK’s total emissions, but it’s a similar figure to the entire UK rail industry (albeit that this may involve an element of double counting, if Redcar steel is used for British rails).

Surely the most attractive option would be for the Government to commit a number of years’ steel plant losses to specific measures to offset the impact of the closure. Incentives for newer, cleaner industries (whether in the energy sector or otherwise) to open their next plants or offices in the area, making use of the deep water port and local logistics; guaranteed retraining and preferential interviews in the new businesses for those directly affected; significant unconditional funding for those wanting to start their own businesses; special transport or relocation subsidies for those who would prefer to travel or move to a different town to work – these are all things that would help towards a sustainable future for everyone, and that surely even a Conservative government could get behind.

Maybe I’m talking out of my hat, and all the Government needs to do is bung SSI a few million quid to keep the place open. To me, though, the alternatives seem to make more sense.

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1 Response to Save Our Steel?

  1. Metatone says:

    I think you are correct, but the bitter experience (c.f. shrinking of coal industry) is that government will put money into a functioning (if loss making) industry, but will tend to shortchange regions when the industry goes away.

    So for the people of Redcar campaigning for a bung to SSI, their stance is relatively rational.

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