Steel Industry

Jonathan Edwards Excerpts

Thursday 3rd November 2016 Westminster Hall

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

It is a pleasure to serve under your chairmanship, Mr Davies. I will endeavour to follow your instruction.

I congratulate the hon. Members for Middlesbrough South and East Cleveland (Tom Blenkinsop) and for Redcar (Anna Turley) on securing the debate. I commend the hon. Gentleman on his opening remarks, in which he showed a deep understanding of the industry. It was a genuine pleasure to listen to him. I thank the Backbench Business Committee for allocating time for this important debate.

I speak on behalf of the steel industry in Wales, which is arguably the most important component of the Welsh economy. Tata Steel Port Talbot employs about 4,000 people directly, and its supply chain is reported to sustain 20,000 jobs in Wales and to contribute £3.2 billion per annum to the economy of my country. We talk about things having national economic strategic importance, and steelmaking in Port Talbot is one of the most important components in a Welsh context.

It is almost impossible to talk about anything these days without mentioning Brexit, so I will get this point out of the way right at the start. Recent revelations about the back-room deal that the UK Government cut with Nissan highlights the Tories’ strategy to pick winners when it comes to Brexit. I will of course back any incentives that support important industries such as the automotive sector, both in their own right and as customers of the steel industry, but as other hon. Members have said, guarantees of that nature must also be extended to the steel industry, which is the backbone of the Welsh economy. My answer to the Government’s Brexit conundrum when it comes to steel is to stay in the single market and the customs union.

It is fair to say that that last time we had a debate of this nature, the mood was dark and there were genuine fears about the future of steelmaking in Wales and the UK. The reasons behind the pressures on the industry are well documented and have been restated today. Instead of repeating them, I will highlight some points made in an excellent report by Swansea University that was published in September. The report, “The sun has risen over steel town: Developing a sustainable steel industry in the UK”, was written by some of the most eminent steel experts in the UK: Professor Sridhar Seetharaman, Professor Dave Worsley, Dr Cameron Pleydell-Pearce and Mr Brian Edy. I commend them for their work.

The report puts forward a very positive prognosis for the steel industry, if supported with swift strategic Government action. The Tata Steel strip business in Port Talbot is today making a profit, performing above the ambitious levels targeted in the local transformation plan put forward at the height of the crisis last year—a plan that had been rejected as over-ambitious by the Tata board in Mumbai. That is quite an incredible achievement. However, in a session held a few weeks ago by the Economy, Infrastructure and Skills Committee of the National Assembly for Wales, evidence from steel producers and manufacturers indicated that order books, although buoyant at present, could take a turn for the worse in the second quarter of next year, demonstrating once again the huge volatility of the industry and that the next crisis could come sooner than anyone would hope. In other words, this is no time for Governments in London and Cardiff to take their eye off the ball. Therefore, the issues surrounding high electricity prices, whereby domestic steelmakers face a £17 per megawatt disadvantage compared with competitors in Germany, continue to be ones that should be urgently addressed.

The UK and Welsh Governments need to look at business rates and at what can be done to remove plant and machinery investments from rateable calculations. We need firmer protocols on procurement. As the Swansea University report highlights, only 40% of domestic demand is supplied by domestic producers. I point the finger at the Welsh Government as well in that regard. The report also highlights that a main consideration for the profitability of plants such as Port Talbot are prices of raw materials and sales prices. In 2014-15 the global weighted sales price fell by 26% due to much-documented Chinese dumping; at the same time the price of iron ore fell by 60%, which is hugely significant given that Port Talbot’s annual spend on raw materials is $1 billion.

A core aim in creating a sustainable industry, therefore, is to build resilience to fluctuations. The report clearly states that it would be logical to use a period in which conditions are favourable, like now, to make the necessary technological innovations needed to make the sector more resilient. The report makes the case that Port Talbot could evolve into a leading-edge, zero-carbon steelmaker with carbon-positive products that utilise locally generated by-products as a chemical and raw materials feedstock. It also argues that Port Talbot would have a viable future once in the hands of an owner with a long-term vision that will commit to and invest in transformational change.

Tata’s ability to deliver that much needed transformational change has arguably been hindered by its decision to vastly reduce research and development investment in its UK plants and to centralise activity at IJmuiden in Holland. That brings me to the current state of play in Port Talbot, where Tata is in advanced discussions with ThyssenKrupp about a merger of their European operations. If the Minister takes one thing from today, let him be in no doubt that the proposed merger is a real threat to the future of Port Talbot. As the Swansea University report states:

“TKS believe that capacity reduction is necessary in Europe, and Port Talbot could become a convenient sacrifice for them.”

Those are not new concerns and have previously been expressed by others and by me in this place. Unite the union made the point strongly in evidence to the National Assembly only a few weeks ago.

My constituency colleague in the National Assembly and predecessor in this place, Adam Price AM, has argued on behalf of my party that the UK Government should intervene if the proposed merger goes ahead unless there are specific guarantees about the long-term future of Port Talbot. His reasoning is perfectly valid when considering the record of ThyssenKrupp. In August 2016 Reuters reported that Andreas Goss, chief executive of ThyssenKrupp Steel Europe, had announced a new aggressive cost-cutting plan for its operations based on plant closures. It is worrying that the voice of the UK Government in Wales, the Secretary of State for Wales, is on record as saying that the proposed merger is “encouraging”.

My last point is that there is an alternative option on the table that seems to be far more encouraging in terms of achieving the long-term sustainable future we all desire. The recent news that two former rivals, Excalibur Steel and Liberty Steel, have joined forces is welcome. Significantly, the bid has Welsh Government support. This rival bid would lead to the creation of a new domestic company, probably the largest Welsh company in terms of turnover.

Liberty, of course, made its name in taking over steel operations in the UK and converting them by installing furnaces capable of recycling scrap steel. The process obviously helps to remove fluctuations from the business model, helping to create a more sustainable business. The Swansea University report indicates that 60% of steel in the United States is now produced from scrap steel by re-melting it in electric arc furnaces. The Excalibur-Liberty deal therefore offers the exciting prospect of green steel and primary steel being produced side by side, thereby helping to meet the transformative challenge set by the Swansea University report.

[Tom Blenkinsop]

Every option has to be considered in terms of Port Talbot’s future. I remember talking in a debate about whether Tata was going to retain Port Talbot, as we foresaw that changes in prices of strip and the potential profit from Port Talbot. I reiterate that Liberty is a good company that has come in, but without the production of primary virgin steel, there is no scrap steel to recycle. My concerns are about any mill rolling slab or rebar, where that steel is coming from. That goes back to the questions about Chinese imports. We need guarantees on the primary source of slab, rebar and billet.

[Jonathan Edwards]

I am grateful for the hon. Gentleman’s intervention. I was endeavouring to make the point that the Liberty-Excalibur deal potentially offers a future in which green steel, as it is called, and primary steel are produced side by side in the two blast furnaces at Port Talbot. Keeping those two blast furnaces open is vital for the viability of Port Talbot. He is completely correct.

I have a simple message for the Minister: this could be a huge success story for Wales and the UK as a whole. My last ask today is for him to agree at least to meet the leaders of the Excalibur-Liberty deal to see whether there is an option for the UK Government and the Welsh Government to put their weight behind a bid that seems to have unanimous support in Wales. Diolch yn fawr iawn.

[Geraint Davies (in the Chair)]

I call Anna Turley. We have all been waiting for her speech.