Steel Industry

Nicholas Dakin Excerpts

Tuesday 14th October 2014 Westminster Hall

[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.

--- Later in debate ---

[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.