Steel Industry

Stephen Doughty Excerpts

Tuesday 14th October 2014 Westminster Hall

[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.