Steel Industry

Tuesday 14th October 2014 Westminster Hall

16:00

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

Thank you, Mr Turner, for the opportunity to begin this important debate on the UK steel industry. I notice that the Minister present is not necessarily the Minister in regard to the Department in question, but I am certain that that holds some great portent for the UK steel industry at the moment.

As is the case for many hon. Members here, my constituency has a great and proud history rooted in the production of steel and associated products, and I hope that that will play a strong role in the future of my area. Before I begin the main thrust of my speech, I want to take this opportunity to mention the fact that in Guisborough in my constituency, the ESCO foundry has recently decided to close, with 65 potential job losses. That concerns a thoroughly committed and local work force in Guisborough, in the centre of my constituency. There are hopes that the foundry can be sold as a going concern. However, my constituency office and the trade union movement have been working quite closely with the business to try to help those individuals to find work at other suitable craft sites, such as Sahaviriya Steel Industries and, potentially, Tees Components in my constituency. Will the Minister urge his colleagues in the appropriate Ministry to meet me to discuss that issue, because to my constituents it is a huge concern?

Apart from the local issue that I have raised, I would like to touch on a number of topics in my speech. First, I would like to refer to an open letter that was sent by 60 CEOs in the European steel industry and published in the Financial Times. The aim of the letter was to persuade Heads of State and Governments at the EU summit on 23 and 24 October

“to give clear guidance that the EU’s new climate and energy framework will—at the level of best performers—not impose regulatory direct and indirect CO₂ costs on globally competing European industries.”

Many hon. Members may be aware that 1 January 2021 marks the start of a new phase of the EU emissions trading scheme and a new set of emission reduction and energy targets to see the EU through to 2030. Although those dates may seem some time away, the decisions are very likely to be taken in a matter of days at the EU summit to which I referred. There are a number of reasons why that meeting is of such importance to the UK steel industry. As in other energy-intensive industries, the CEOs who signed the letter are calling on EU leaders to ensure that the most carbon-efficient plants in globally competing industries are fully protected from the direct and indirect cost of cutting emissions. By and large, the steel industry is committed to cutting its emissions. Exposing some of its members to the full cost of EU climate and energy policies could prove devastating.

The current ETS is flawed in many respects and, if simply rolled over into the next phase, will leave sectors such as steel seriously short of allowances. The principal flaws of the current schemes are as follows. First, allowance allocations are calculated by reference to performance benchmarks for different types of plant. Those benchmarks are supposed to be equal to the performance of the best 10% in each plant category, but there is not one single integrated steel plant in the UK, or in Europe for that matter, that can meet the Commission’s benchmarks. Although the most carbon-efficient EU plants are getting close to the theoretical limits of what can be achieved through current production methods, a step change may not be possible until the early 2030s, and even then that will require massive investment in plants that are usually upgraded only once in a generation. There should be a real incentive to improve efficiencies, but only as far as is technologically achievable. Pushing production and investment out of Europe will not meet goals to reindustrialise our economy. That also puts local supply chains at risk and is counter-productive from an environmental perspective, as imports are likely to have a larger carbon footprint.

[Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)]

I thank my hon. Friend for securing this important debate—I am sorry I will not be able to stay for the full length. Does he agree that it is deeply ironic that companies such as Celsa in my constituency, which has one of the most up-to-date and carbon-efficient steel-making processes in Europe, face huge challenges from countries that are not as carbon efficient, whether that involves China or Turkey dumping imports in this country or a number of other concerning factors? It would be deeply ironic if those companies were to face challenges despite having that incredibly efficient process.

[Tom Blenkinsop]

I thank my hon. Friend for that comment, because we met people from Celsa at a recent meeting of the all-party group for the steel and metal related industry, which I chair. They came to the meeting and were really instructive and helpful in giving us the calculations and statistics that affect their industry. I believe that their plant was built in 2006. It is practically a brand-new steelworks, with an electric arc furnace. They were telling us about the difficulties that they have been put in as a result not just of European policy, which I have set out, but of the Government’s own carbon tax policy. The carbon price floor has penalised UK industry above and beyond our EU competition. There is a twofold element. This is not just about the massive increases in foreign imports; we have penalised our own industry and undermined the march of the makers on our own doorstep. I am sure that Ministers who would have been here would have been able to listen to that fact. I shall say again that there is some great portent in why they cannot attend this debate today.

A further flaw in the system is its unresponsiveness to changes in the economy and individual company activities. We have the absurd situation in which EU allowances trade at under €6 a tonne because the recession has resulted in an over-supply of allowances, while companies such as SSI are short of allowances because they are expanding output. The system needs to be more flexible if it is to work for all.

In the Budget debate earlier this year, I welcomed the news that the Government intended to introduce relief against the rapidly rising costs of carbon levies, and the mitigation of the renewables obligation is a particularly good step forward. However, I do have concerns that have still not been addressed. It looks as if there will be a massive underspend in the support packages. In 2013-14, £35 million was provided for companies, and so far this year only 53 companies have received compensation: £41 million of EU ETS compensation and £6 million of carbon price support compensation.

The UK steel industry will continue to face considerable challenges in the interim, given that the national and international demand for steel is still at mid-financial crisis levels. Again, I can only urge the Minister to urge the Treasury to bring the compensation forward, so that the steel sector and other foundation industries do not have to wait.

Another issue that I would like to discuss is the threat to the UK steel industry from international imports and the over-saturation of markets with certain products. I am referring to non-EU imports of rebar. In 2010, non-EU sales of reinforcing bar equalled approximately 4% of the UK market share. Since then, non-EU rebar, mainly Chinese in origin, has surged to take a 37% market share. When combined with Turkish imports, non-EU imports moved to take 49% of the market in quarter 2 of 2014. People should bear in mind the fact that in May 2010 it is 4%, and in quarter 2 of 2014 it goes to 49%. That is a massive surge—a massive increase—in imported rebar steel. At the same time, the UK producers’ market share plummeted from a traditional level of about 60% to just 33% in quarter 2 of 2014.

That is a profound problem for the UK steel industry, to say the least. The cause is the slow-down in Chinese construction activity, which has prompted certain Chinese producers to seek new markets in which they can dump excess production, but it is also due to trading houses facilitating that explosion in imports to the UK market. They have come to the UK because they are already accredited under the British accreditation scheme to sell in far eastern markets, such as Hong Kong and Singapore, which use the same accreditation scheme.

A loss of sales of that magnitude is unsustainable in the longer term for the one remaining British producer of rebar, based in Cardiff in the constituency of my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty). There have been reports in the construction press that some of the Chinese bars already in the market fail to comply with the British standard. UK Steel has even taken the step of advising all UK fabricators and contractors to test Chinese bars before using them. Pressure must be placed on the European Commission to act against these dumped imports, and the Government must ensure that all substandard material is removed from the market.

I would like to discuss the steel market in more general terms. Unfortunately, although UK steel demand has risen this year, overseas producers are the main beneficiaries. As I said, imports in quarter 2 of 2014 took 63% of the market—the highest share ever. For most steel products, the bulk of imports come from other EU countries. It is clear that the UK steel industry is suffering from the twin problems of the rising value of sterling against the euro and continuing uncompetitive energy prices. Although there is little that the Government can do about the former, it demonstrates that the UK steel industry remains fragile and underlines the importance of the Government acting urgently on energy prices, which are within their control.

Energy prices are critical not only to the UK steel industry but to any future expansion. The Government’s analysis revealed that last year’s average industrial electricity prices for UK industrial consumers were the fifth highest in the EU15, including taxes, and 6.2% above the estimated median for that group. Those prices prompted a warning from UK manufacturers’ body EEF that UK electricity costs and taxes were pricing manufacturers out of the UK. Steel companies are among those hit hardest by the rising costs. Competitive energy prices and secure energy supplies are vital for the future of the steel sector in the UK.

[Nic Dakin (Scunthorpe) (Lab)]

I congratulate my hon. Friend on securing this timely debate. He is making his point very well. Does he agree that if we are all committed, as we seem to be across all parties, to having a strong manufacturing base, foundation industries such as steel must be properly supported, particularly on energy prices, skills and procurement?

[Tom Blenkinsop]

My hon. Friend has been banging that drum since he was elected in May 2010. My fear is that we are reaching a critical point where not only the steel industry but all energy-intensive industries are begging for help. They are trying to compete in the world as best they can, with the best forms of technology, and they are driving costs down as much as they possibly can. However, when Government policies make it harder and harder for them to exist on UK soil, it is no surprise that there have been reconfigurations in the steel industry across the European market.

[Jessica Morden (Newport East) (Lab)]

I agree with all the points that my hon. Friend has made. In constituencies such as mine, where Tata Steel and its employees have worked incredibly hard over the past few years to become more efficient and weather the storms, we would like the Government to appreciate that the economic environment is still very challenging in the UK and internationally. We do not want the Government to think that things are getting better; there must be more focus and no complacency, so that we can continue to look at issues such as energy.

[Tom Blenkinsop]

The Government need to understand not only that the industry has had to adapt, but that the work force has had to adapt for long periods of time. Before I entered the House, I was a trade union officer for Community, formerly known as the Iron and Steel Trades Confederation, which represents workers in the production side of the steel industry. I am still a member of that union, and that is a declarable interest. Since 2008, those men and women have been on short-time working, have accepted changes to their terms and conditions and, in some cases, have accepted pension changes. They have done so in the hope of maintaining an industry in their community, whether in south Wales, the central belt of Scotland, south Yorkshire, Sheffield, Corby, the east midlands, the north-east of England or Scunthorpe. The workers have all taken such penalties to help to maintain an industry, so that their sons and daughters have jobs in the future. Until Government policy recognises and matches the daily sacrifices made by individuals on the ground, those hurdles will not be overcome. I stood by that opinion as a trade union officer, and I stand by it now as an elected Labour MP.

To be slightly more parochial, the north-east is, per capita, the most energy-intensive region in the UK. All the while, UK generation capacity is decreasing rapidly, and the margin of spare capacity has not been this low for decades. However, the north-east enjoys an embarrassment of riches in the energy sector, from offshore wind to coal, electric vehicles, energy from waves, carbon capture and storage, coal gasification, biomass and biofuels. The list goes on and on. Competitive energy prices and secure energy supplies are vital to the future of the steel sector in the UK. Inaction and uncertainty only put off investors and limit job creation.

It is not all doom and gloom. The UK steel industry continues to be a proud and important part of the industrial backbone on which our economy was built and on which it will almost certainly rely as it adapts for the future. Steel is a vital foundation for many of the UK’s strategic supply chains. The UK leads the world in sectors such as automotive, energy, construction and aerospace, and UK steel is integral to all those sectors. Will the Minister comment on any contingencies that the state has put in place in case our supply chain is undermined or put in jeopardy? Security of supply and UK expertise are vital for infrastructure delivery, especially —I cannot emphasise this enough—for projects that require large and unique product types. Outsourcing is unsustainable if we are to have the ability reliably to deliver major programmes, and in terms of the logistical impact on the UK.

The steel industry has an important role to play in clean production technologies. Wind energy is a good example, because every part of a wind turbine depends on steel. The indirect benefits of the sector are significant with, for example, two to three jobs in the broader economy dependent on each job in the metal sector. Realistically, it is the truest form of a balanced economy, because its impact is spread across the UK, and is significant outside London and the south-east. To ignore not only the role steel has played in the development of our nation but its potential to secure our nation’s future, would be shameful.

As I mentioned at the beginning of my speech, steel has a proud history. I believe that it has a strong future, but that will not be the case unless the Government do everything they can to back the industry. The Minister’s own father was a great advocate of the steel industry and wrote an excellent text on the matter. My predecessor, the late Dr Ashok Kumar, remarked that it was probably the best book ever written on the steel industry. I hope that the Minister’s response will be as good as his father’s text.

16:16

[The Minister for Culture and the Digital Economy (Mr Edward Vaizey)]

It is a great honour to speak under your chairmanship, Mr Turner. I apologise for the fact that I am the Minister responding to this debate. The Secretary of State is in India, and my right hon. Friend the Minister for Business and Enterprise, who has responsibility for energy, is in a Bill Committee. However, I am a Minister in the Department for Business, Innovation and Skills, and I was recently promoted to serve in that Department as well as in the Department for Culture, Media and Sport. That is despite the fact that The Guardian described me as a Liberal Democrat who had not been promoted and who sat in Cabinet, all three of which are wrong.

I am grateful to the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) for mentioning my late father’s book, “The History of British Steel”, of which I just happen to have brought a copy. I hope that the hon. Gentleman will indulge me for a moment, because it is the 40th anniversary of the publication of that great book. The hon. Gentleman’s illustrious predecessor, the late Ashok Kumar, and I became good friends because he stopped me in the corridor one day and said that he suspected that even though I was in the House, he was the only Member of Parliament who had read “The History of British Steel” by John Vaizey. That was true at the time, but I have since rectified that. That remarkable text highlights the ups and downs of the British steel industry, which has gone through many crises in its 170-odd year history. Many of those difficulties were caused by political interference, but quite a few were caused by stiff competition, particularly in the early 20th century from America.

The hon. Gentleman ended his remarks on a positive note, not only by kindly mentioning my late father’s book but by talking about the resilience of the British steel industry. It is important to focus on an industry that still employs 300,000 people. The north-east has a proud history of steel making and manufacturing, and I am particularly delighted that the former Tata Steel plant at Redcar is once again producing steel for customers around the world under its new owner, SSI Thailand.

The UK continues to make manufactured goods. A successful manufacturing sector remains the key to driving the innovation and exports that are crucial to productivity growth in the UK economy, and the steel industry has an important role to play in generating future economic growth. The hon. Gentleman talked about the supply chain. Our steel industry underpins a number of key advanced manufacturing sectors and sustains the livelihoods of many local communities, particularly those in his constituency.

Steel is found in skyscrapers, washing machines and almost any essential goods that one might care to mention. The modern steel industry has made huge technical advances. I am told that 75% of the types of steel used today have been developed in the past 20 years. If the Eiffel tower were rebuilt today, we would need to use only a third as much steel as was used when it was built. Modern cars use new steel that is stronger but 35% lighter.

As the hon. Gentleman and I have already said, steel is a critical part of the supply chain for high-technology industries such as aerospace, automotive and construction, all of which require high-value, continually improving steel products. We remain committed to a healthy and growing steel industry in the UK. There will always be a need for steel, but we must consider our steel industry in the context of the global economy, as the hon. Gentleman did. He highlighted the impact of energy regulation and imports, which I hope to address in my remarks.

As I said at the outset, the steel industry is notoriously cyclical. It has booms, but major slumps in prices and output have occurred regularly throughout its history. The sector is emerging from a downturn that is considered by many industry insiders to be more extreme than any other in living memory. Half of steel output is used in construction, an industry that suffered more than most during the recession. Despite renewed economic growth, demand for steel is still well down compared with before the crisis hit and is not expected to grow substantially this year. High energy costs, which I have already mentioned, and chronic overcapacity in the wider European steel industry have also affected prices, squeezed profits and hit investment. UK steel companies, like their competitors, have been forced to make uncomfortable decisions, and it is regrettable that Tata Steel has reduced its work force by 25% and its UK operating and production company by more than 20%.

[Nic Dakin]

I congratulate the Minister on his speech so far. Despite all the challenges that steel has faced, and following the great work by workers in my constituency and across the country to get the steel industry to where it is today, will he make it clear that the Government are committed to working with steel workers and steel companies to ensure that there is a steel industry for the future, whatever bumps and troughs there may be in the road as we move forward, so that it can be a foundation to move this country forward, as it has been in the past?

[Mr Vaizey]

I am happy to make that clear. The Government are unequivocal in their commitment to the UK steel industry and will do all they reasonably can to support the industry as it faces the hurdles and obstacles in achieving fair competition. No one denies the climate in which the UK steel industry operates, and we were saddened to hear the announcement last month that the ESCO Corporation foundry in the constituency of the hon. Member for Middlesbrough South and East Cleveland will be closing with the loss of 65 jobs. This will be a very difficult time for all those affected, but I am encouraged that the company will continue trading until the end of the year, particularly as that will hopefully allow employees time to secure alternative employment. A talent retention solution that helps skilled employees affected by redundancy to find jobs in other engineering companies should be able to assist in that regard. He also raised concerns about the current financial position of the SSI integrated steel plant at Redcar, and there are clearly challenges ahead, but the situation is not as serious as recent press reports suggest.

[Tom Blenkinsop]

I did not mention the financial element of SSI because I agree with the Minister. When financial reports are released, they usually provide a 12-month outlook, but the company and its work force have done a lot to overcome many of the barriers. We must send a positive message about SSI because it is coming out of a difficult period.

[Mr Vaizey]

Exactly. I should have said that the hon. Gentleman made it clear that the reports about the current financial crisis at SSI are inaccurate because, of course, there has been investment in new product. In June 2014, the operation turned a profit for the first time since the plant was restarted in April 2012. The plant is currently running at 85% to 90% capacity, and its product is being bought by customers in Canada, the USA, Mexico, Germany, Italy, Turkey, Australia and Thailand. Despite the difficult trading climate, the UK remains a significant player in the global market, although there is no room for complacency. In August, the UK replaced France as Europe’s second-largest crude steel producing country, which was the first time that we have had a higher output than France since January 1997. We have also overtaken Italy for the first time in 17 years. The UK’s steel output has increased largely on the back of new investment and improving efficiency, which is also driving production to record levels not only at the integrated steelworks at Redcar but at Port Talbot. The latest figures show that crude steel production between January and August 2014 increased by almost 7%.

As I said to the hon. Member for Scunthorpe (Nic Dakin), the Government want to assist in any way they can. We work through all channels, at both ministerial and working levels, to ensure a free-flowing, constructive dialogue with UK steel companies. We work closely with the steel industry on a range of issues, including minimising regulatory burdens and regulations, but of course EU state aid rules limit the direct help that can be offered to steel companies. We cannot offer operational aid, but we can offer aid on research and development, environmental protection and some training. Working within EU rules, we are implementing a £7 billion package of measures to address energy costs, including £3 billion to compensate energy-intensive businesses for the impact of policy costs on their electricity bills. We are also directly supporting the long-term future of Tata Steel activity in the UK. We approved £8.2 million of Government funding to support a new R and D centre at Warwick, which is on top of the £20 million offered to Tata over the past three years to enable further investment in R and D. Through the advanced manufacturing supply chain initiative, we have also offered just over £12.7 million towards the £22 million proving factory specialising in the industrialisation and low-volume production of advanced propulsion systems to automotive standards. Tata is a key partner in that project.

We are also working to help the steel industry to win orders. The national infrastructure plan includes 500 projects worth a total of £250 billion for 2015 and beyond. That figure includes more than £1 billion in railway infrastructure. It has also been announced that 95% of the steel for the UK’s rail network will come from Tata Steel for the next five, and possibly 10, years. Who knows? That may continue as we move forward with HS2. Those products should make a difference by stimulating demand for steel, thereby creating significant supply chain opportunities.

The hon. Member for Middlesbrough South and East Cleveland talked about the impact of climate change regulations. I have mentioned the £3 billion support package that we have introduced to offset the indirect costs of the emissions trading system. He said that some of the regulations are simply beyond the technical capacity of any company working in the steel industry, but my understanding is that there will be an opportunity in the next few months to work with the European Commission on the new package that will be in force from 2020 to 2030, so that the regulations can be made more realistic. I will ask my colleague, the Minister for Business and Enterprise, to write to the hon. Gentleman to address his concerns that not enough compensation has so far been paid out to electricity-intensive industries. He is correct that 53 businesses have received just over £41.3 million, but I will check with my colleague whether there is a hold-up on paying out for other issues.

The hon. Gentleman also mentioned Chinese rebar imports. BIS officials have raised concerns with the European Commission, and we understand that the Commission is still considering the possibility of opening an anti-dumping investigation. We will consider the evidence providing by the Commission, but at this stage we would support any Commission decision to open an anti-dumping investigation.

This debate on the UK steel industry has been important. As one would expect, the hon. Gentleman and his colleagues have highlighted critical issues for industries that are incredibly important not only to their constituents but to the economy of the UK as a whole. I will take his remarks in the spirit in which they are intended, and I will take them back to the Department. I will highlight his perfectly understandable concerns about the impact of climate change regulation on energy-intensive industries and the possibility of reform. He has expressed concern about imports from outside the EU that may have a large carbon impact. His focus has been on ensuring that there is provision to secure the supply chain. I hope that he and his colleagues have heard the message that I have tried to convey as a relatively new Minister in this field, which is that the Government take the steel industry seriously and will do all within their power to help.