Steel Industry

Lord Prior of Brampton Excerpts

Tuesday 25th April 2017 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Prior of Brampton) (Con)]

My Lords, I begin by thanking the noble Lord, Lord Mendelsohn, for bringing this debate to the House. It is extremely important. Steel is very close to many of our hearts in this Chamber. It is very good to have the chance to debate it.

I have not yet visited Scunthorpe under the new management of Greybull, but I very much look forward to doing so and meeting the team that the noble Lord met when he was there a few months ago—although I do not imagine he got his new suntan when he was in Scunthorpe. I also mention my noble friend Lady Redfern, who lives very close to Scunthorpe. She mentioned the community spirit and the importance of the supply chain. She mentioned that the jobs of 16,000 people were dependent on the supply chain of the Scunthorpe steelworks, so when we talk about steel we are talking about many other industries as well.

The noble Lord, Lord Jones, referred to steel as a foundation industry. He is absolutely right. He spoke about Shotton. I visited Shotton only a month ago. It is wonderful to see the coatings plant there, but it is pretty sad to see where once there was a great integrated steelworks.

The noble Lord, Lord Bhattacharyya, mentioned that when he was growing up as a young engineer in the 1960s Britain was seen as the home of steel. He said that for many years, really since the war, the British steel industry has suffered from underinvestment for all that time. I think he said that in 1980, despite having invented continuous casting in this country, which was a fundamental technological breakthrough for the steel industry, we had the lowest percentage of steel made through continuous casting—a pretty damning condemnation of our industry at the time. I think of how much investment went into two steel plants, Llanwern and Ravenscraig: both were undersized, in the wrong place and underinvested. However wonderful and flexible the labour force is, if the strategy is fundamentally wrong, as those two plants were, in the long run nothing can save them.

Listening to the noble Lord, Lord Brookman, I could almost see in my mind two people that I am sure he remembers from those days: Bill Sirs, who was general-secretary of the ISTC, and Hector Smith, who was general-secretary of the National Union of Blastfurnacemen at the time. He spoke with great passion about Ebbw Vale.

I did not agree with many of the words of the noble Lord, Lord Bilimoria. I did not recognise his characterisation of our industrial strategy Green Paper; I did not see where he was coming from. We are absolutely committed to a strong and competitive manufacturing sector in this country. I reassure the noble Lord, Lord Stoneham, that we are calling for a modern, competitive industrial sector in this country. It has to be long-term; there is no point having an industrial strategy for the length of just one Parliament. Whoever wins, I hope that after the next general election we can have some consensus over that. If we cannot have consensus over the long term, how is industry to have it?

The noble and learned Lord, Lord Morris, raised pensions. I have to declare an interest as a member of the British Steel pension scheme, so I cannot address his particular issues. If the officials can write to him after this debate, I will arrange for that to happen.

For me this is Groundhog Day. When I joined British Steel in 1980 we were producing 15 million tonnes of steel a year. We had five integrated sites. About 200,000 people worked in the industry. Since then, 30 years have passed. What makes it Groundhog Day is this: the problem in 1980 was fundamentally one of overcapacity, which led to low prices. In the trading year 1979, British Steel lost £309 million. I could not find the figure, but my recollection is that in 1980 it lost £700 million. In today’s money, that is £3 billion to £4 billion.

In those days, new capacity was coming on, largely from Japan, closely followed by South Korea. Japan installed 100 million tonnes of capacity. It was low-cost capacity; it was all on deep water. It was all highly productive; it was new technology. It was all continuous casting and of great quality. To our shame, most of the steel that went into the pipelines in the North Sea to bring ashore oil and gas was made in Japan and not by British mills. Much of the steel going into the Ford Motor Company at the time had to come from abroad because we could not meet the quality requirements.

Today, we have a similar problem but from a different country: it is of course China. Its steel production capacity is hard to measure, but it is probably around 1 billion tonnes. If we put that against our total UK production in 2016 of a little over 7 million tonnes, it sets our industry in some kind of context. Chinese steel production has increased sixfold since 2000.

As China has exported into other Asian markets so they, too, have exported in return into the western European markets. In a high fixed-cost industry such as steel, the temptation to marginally price is hard to resist, so we have had extremely low prices for a long time.

As has been pointed out by noble Lords this evening, particularly the noble Lord, Lord Bhattacharyya, we had an extraordinary inheritance. The Industrial Revolution started here. The iron and steel industry started here. There was the open hearth process and continuous casting. We invented stainless steel. British-made steel products are seen in iconic buildings and structures all over the world.

Despite that, since the war, with the uncertainties of nationalisation and denationalisation, we suffered from persistently low levels of investment. Where we did invest, I am afraid that the involvement of politicians was not a happy one. We would not have had Ravenscraig here and Llanwern there had it not been for, with hindsight, mad political interference. At Redcar, we had a one-blast-furnace operation. That is not a viable strategy for the long run. The whole concept of producing on Teesside low-value, semi-finished slabs from iron ore and coal coming in from Australia and Brazil, and then re-exporting those slabs back to Thailand, was hardly a strategic decision of great genius. Even today—if we are honest—although the configuration with two integrated sites is where we need to be, those two sites are not ideal. It is not ideal to have coating plants at Shotton and hot rolled coil being made at Port Talbot. It is not ideal to be making blooms and billets at Scunthorpe and to have the finishing section mills on Teesside. While those plants are not ideal, they can be competitive, but we must be realistic that they will not be as competitive as those fully integrated plants that we see on deep water, with modern equipment and modern investment, in other parts of the world.

Nevertheless, we have reached the point where we have two integrated plants in the UK and not five, which is a huge improvement. We also have a very important scrap-based electric arc business in Sheffield and south Wales. Again, given the right investment, these should be competitive given the availability of scrap. We export 7 million tonnes of scrap a year from this country. Surely we can do better by melting more of that in the UK.

The overall numbers for the UK are grounds for encouragement. UK steel demand is around 10 million tonnes a year, which is roughly in line with our capacity. If we add in the steel of imported manufactures, we see that we consume 22 million tonnes a year. If some of that manufacturing can be reshored to this country over the next five to 10 years, then that gives even bigger opportunities for our domestic producers.

Much has changed since this House was last formally updated in April 2016. As noble Lords mentioned, Greybull Capital acquired Tata’s long products business based in Scunthorpe. In September, the two Scottish plate mills, at Dalzell and Clydebridge, re-opened under Liberty Steel’s ownership, following their acquisition from Tata. More recently, Liberty Steel announced it had agreed a sale and purchase agreement with Tata for the speciality steel business in South Yorkshire. At the same time, Tata Steel Europe remains in negotiations with regard to a possible joint venture with thyssenkrupp. So much is going on in the ownership of the steel industry but in a sense having a clear separation of special steels, long products and strip mill products is no bad thing. They are three very different businesses with different markets and different manufacturing processes.

I also acknowledge the efficiency savings and productivity improvements realised at Port Talbot by the Tata workforce. The noble Lord, Lord Bhattacharyya, and others referred to the flexibility and spirit of the workforce both at Port Talbot and in Scunthorpe.

I then turn briefly to the actions the Government have taken. We are compensating energy-intensive manufacturers such as steel for the costs of renewables and climate change policy. To date, we have paid over £151 million to the steel sector. We secured flexibility over the implementation of EU emissions regulations. The Government introduced revised steel procurement guidance, as has already been noted, to ensure that UK steel producers have the best possible chances of competing for public sector work. We provided a procurement pipeline for steel to ensure that the UK sector has every opportunity to prepare to meet this future demand. We also successfully pressed for the introduction of trade defence instruments to protect UK steel producers from unfair steel dumping. There are now 41 in place in the EU. Yet in my experience of anti-dumping, it is always too little, too late—it always takes too long because the damage is done before the actions can take place.

I have not got much time and it is late in the evening. We are open to a sector deal for steel. Anyone who thinks that steel is a low priority has misread the runes. We put it to the UK steel industry that it is in its hands to come forward with a proposal for a sector deal. Of course, it is entirely up to the industry what is in that sector deal but I would certainly expect it to focus on: technology; investment, clearly; training; how we can go further up the value chain; how we can look at new products—the new rails at Scunthorpe were mentioned and that is exactly the kind of thing we should do—lower energy uses; and how we can make better use of the surplus scrap available in the UK.

There can never be a guarantee about the future of any industry at a time of such extraordinary technological disruption as is going on in our markets. However, this industry in the UK has been resized. I must believe that there is a long and profitable future for the UK steel industry. We are committed to a strong manufacturing base in this country and steel is a vital part of a long-term supply chain for many industries. You cannot build a manufacturing base buying on a spot basis from overseas. That is not a viable way of securing that. So I am optimistic about the future. It has been a long and traumatic journey and struggle for this industry. Many lives have been ruined along the way because of poor strategic decisions taken in the past. However, now the structure of the steel industry and the commitment of companies such as Tata to it give me great hope for the future.