What is the Future of British Steel?

Written By Andrew Clark

For an industry that is hardly up-and-coming – indeed, one that has been around since the Industrial Revolution – British steel has featured considerably in recent news.

The collapse of Greensill Capital earlier this year focused attention on the potential vulnerability of the UK steel industry. Public interest was piqued as we watched the future of Liberty Steel, a recipient of considerable backing from the financial services company, thrown into jeopardy, amidst rumours of David Cameron’s lobbying for Greensill’s bailout.

Disgraced ex-Prime Ministers aside, the steel industry has also been subjected to scrutiny on a more fundamental level in recent years. This primarily stems from the industry’s apparent environmental unfriendliness. The UK’s favoured method of steel production is the blast furnace which, as we might remember from GCSE Chemistry, releases CO2 into the air. The statistics do not look good: the UK’s two remaining major steelworks sites, at Port Talbot and Scunthorpe, account for 95% of total emissions from iron and steel sites in the UK [1].

Few could have missed the warning of a ‘code red for humanity’ in the report issued by the UN's Intergovernmental Panel on Climate Change (IPCC) last week [2]. The report stated that human influence, of which carbon emissions generated by heavy industry play no small part, is unequivocally responsible for our planet’s warming. In the year of COP26, the climate summit due to be held in Glasgow this November, can our leaders really be seen to justify the existence of a sector that emits 15% of the UK’s total industrial emissions [3]?

UK steel’s impact on national industrial emissions [3]

UK steel’s impact on national industrial emissions [3]

In light of this, some might say that British steel is destined for decline. For the last decade, once-thriving steel sites across the UK have been closed and demolished due to economic unfeasibility, with the first of Redcar’s 11 former steel plants being the most recent casualty earlier in August.

However, morbid sights such as these should not lead us to underestimate the importance and relevance of the British steel industry in 2021. Nationally it is still a significant employer, with 32,000 people employed directly and another 40,000 by its supply chains [4]. Its material outputs are critical to the UK’s construction, infrastructure, transport and science sectors, and overall it generates £5.5bn per annum for the UK economy. The steel industry’s time is not up. Rather, its future is going to be determined by an intersection of forces that represent the key priorities of today.

Jobs supported by UK steel industry [4]

Jobs supported by UK steel industry [4]

Driving Forces

The first of these is ecological. As stated above, ‘going green’ is a hugely important consideration for British steel. Stakeholders must work to reverse the industry’s reputation as one which is fundamentally incompatible with environmentalism. There is cause for hope here, with industry veterans noting the shifting priorities of the industry’s decision-makers. One commented that ten years ago, green technologies were a peripheral irrelevance in British steel, whereas now it is virtually impossible to secure investment on projects which are not founded on sustainable principles.

One particular and increasingly pertinent development in British steel is decarbonization. To meet environmental goals, the UK government currently leans towards carbon capture, usage and storage (known as CCUS). CCUS comprises technologies that capture emissions released by steel production, then store them until they are required for use by other industries rather than releasing them into the atmosphere.

In 2020, the government announced its £1bn commitment via its CCS Infrastructure Fund to ‘deploy[ing] carbon capture, usage and storage (CCUS) in 4 industrial clusters, aiming to capture 10MtCO2 a year by 2030’ [5]. It is of course worth noting that there is no unanimously-favoured solution to the green issue. Some CCUS-sceptic industry experts cast it as a wasted investment on the grounds that CCUS technologies will soon be overtaken by more advanced ones.

The CSS Infrastructure Fund

The CSS Infrastructure Fund

Yet even if this is the case, CCUS is not the only green solution to traditional steel production. Elsewhere on the continent, European leaders are more typically drawn to hydrogen-based alternatives. Although the technology is more expensive than CCUS, Europe has recently launched a series of 24 projects, both pilot and full-scale, which use hydrogen to produce steel. The jury may still be out on the best approach, but what is certain is that the development and interaction of green solutions in the steel industry is one to watch.

A second force with considerable bearing on the future of our steel industry is international competition. Like any resource manufactured on such an enormous scale, British steel cannot escape its industrial, economic and geopolitical significance on the world stage. Whilst in office, Trump harnessed steel as a channel through which to express his anti-Chinese stance, by famously increasing import tariffs on Chinese steel into the US. At the time, this provoked concern amongst European stakeholders about a diverted flood of cheaper steel into Europe undermining domestic production.

Closer to home and more recently, we should note the outcry at Port Talbot prompted by the upcoming expiration of protectionist measures for British steel earlier in July. The Trade Remedies Authority (TRA) recommendation to remove the measures, which had prevented nine domestically-produced steel products from being undercut, led the shadow Welsh secretary to criticise the government for leaving British steel ‘dangerously exposed to cheaper imports’ [6]. In the end, the TRA was overruled and ministers extended the protections at the eleventh hour. This certainly highlights the appetite to sustain our domestic industry, despite the increasing availability of cheaper imports.

Lastly, the future of British steel will, as ever, be shaped by demand. Today’s market is characterized by a notable volatility in the prices and availability of industrial materials, including steel. Supply is currently not satiating demand for steel in the UK, and this is not without consequences. In one case, the collapse of Midlands-based contractor AM Griffiths was partly attributed to inflated material costs, including that of steel, by up to 10%. With many commentators anticipating a post-COVID construction boom, the optimisation of British steel has never seemed more critical.

Inflation of material costs

Inflation of material costs

A Way Forward

So how can the forces of environmentalism, competition, supply and demand be harnessed effectively by policymakers to ensure a healthy future for British steel? No doubt that collaboration between the government and industry experts is essential to finding the best solution. Given that both CCUS and hydrogen solutions are at relatively embryonic stages of development, investment risks being stymied by the government’s traditional reluctance to commit to unproven technologies. As such, sustained communication between the scientists trialling these methods and the politicians making these decisions is key.

And promisingly, the government has already made some notable commitments to the advancement of British steel, such as the £400m sum to nationalise the manufacturer Sheffield Forgemasters in July. The acquisition of the site by the Ministry of Defence is due to be completed this week, with the ten-year investment earmarked to modernise the plant and its equipment to become more efficient and sustainable. Granted, the rejuvenation of the Sheffield site was partly motivated by interests close to No.10, namely national security. Nonetheless, it also represents a recognition among our leaders that far from being an industry that has seen better days, British steel is a fertile ground for modernisation.

With this in mind, we should envisage the forces on British steel that we have discussed today not as undermining the existence of the industry, but as drivers of innovation. Without a robust steel industry, multiple sectors across the UK would suffer and tens of thousands of jobs would be lost. Our leaders must invest in innovative solutions not only to honour pledges to sustainability and to fulfil green targets but to ensure that the UK remains a strong and viable player within the global market. These forces of change are not destructive, but productive.

Andrew Clark https://deeconconsulting.com
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