UK Steel Industry

Debate between Stephen Doughty and Tom Blenkinsop

Wednesday 3rd December 2014 Westminster Hall

[Stephen Doughty]

I wholeheartedly agree with my hon. Friend’s points.

On another issue, the Minister here today will know that business rates are one of the few taxes that are non-cyclical and fixed at a level irrespective of economic or market conditions. As such, business rates are treated by industry as a fixed cost, which is given much greater prominence when making investment decisions. According to the industry, the fact that business rates are five to 10 times higher in the UK than in EU counterparts represents a significant comparative distortion that undermines the UK as a destination for investment.

Will the Minister say whether any consideration has been given to removing plant and machinery from the business rates valuations? What about alternative approaches for large-scale manufacturers, with a view to adopting a simplified model based on capital values rather than hypothetical rental values?

I come to foreign dumping, responsible sourcing and supply-chain access, huge issues for UK-based steel producers—and the environment is changing all the time. We have been shown some shocking statistics. I mentioned the reinforcing bar produced by Celsa in my constituency. Hopefully, the Minister has seen the data that show that imports from China now account for more than a third of overall UK market share, which is a dramatic increase in recent years; the figures for this year show an even greater increase. We also see problems with imports from Turkey.

There are also questions about traceability in the supply chain and the fact that the classification of such products often does not meet British standards. In the extreme, that has potentially serious implications for the future structural integrity of buildings or infrastructure projects in which non-compliant rebar or other steel products have been used.

The UK Certification Authority for Reinforcing Steels has been too slow and ineffective in its response to date. Quite frankly, the Government’s response has also been disappointingly slow, given that I understand that misclassification was raised at the steel contact group in October 2013 and again in June 2014.

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

My hon. Friend is making an excellent point about the importance of manufacturing to his constituency. We know that Celsa was built under the tenure of the previous Labour Government, much like the blast furnace at the Redcar steelworks near my constituency that was built under the Callaghan Labour Government. We are potentially on the verge of putting 46% of Britain’s steel making in limbo. We need strong opposition from the Government in relation to Celsa as well as Scunthorpe’s four-blast-furnace operation. We need clear direction and a clear message from the Government about what steel production will look like in the future.

[Stephen Doughty]

I thank my hon. Friend for those well made points; I wholeheartedly agree with them. On traceability and the quality of products used, the Government could do something right away: ensure that all Government or Government-backed projects have a robust, responsible sourcing requirement.

As I have said before, although the Government’s sector- by-sector approach is welcome, it must be dramatically accelerated. That would, without doubt, serve to stem some of the questions about safety and sustainability rightly coming from concerned people inside and outside the industry. Reports that Chinese rebar has been failing British standards tests coupled with the news that one third of rebar used on UK sites is Chinese should have red lights flashing on ministerial dashboards, not only in BIS but in other Departments.

--- Later in debate ---

[Stephen Doughty]

My hon. Friend makes a crucial point about not just the industry, but the crucial infrastructure projects, especially in transport, that it supports. It is crucial that we get that right.

I mentioned Celsa’s contribution to the Crossrail project. The only responsible sourcing scheme in the UK that guarantees cradle-to-grave traceability for construction steel products is BS 6001, which was crucial to Crossrail. Will the Minister say whether the Government intend to ensure that all public projects apply the same standard in a timely fashion?

Ultimately, each of the issues and concerns that we have raised can be considered on its own, but there is an increasingly apparent need for a detailed, workable industrial strategy for metals, including steel. The Minister might jump to his feet in a moment and cite the development of a UK metals strategy as showing that the Government are on the case, but by all accounts, that is still in its early development stages and is not even guaranteed to receive official backing, despite being funded by BIS.

Indeed, we are more than four and a half years into a Government who chose not to include the metals industry among their sector-specific industrial strategy and who now, quite frankly, are playing catch-up. We have talked about procurement and other investment decisions, but the UK cannot afford to lose out on major public infrastructure projects, as Community made clear was the case with the £790 million contract to supply steel for the new Forth road bridge. Tata steel’s plant just down the road could have supplied more than one third of the required steel, but instead the contract went to producers in China, Poland and Spain.

[Tom Blenkinsop]

The Minister will probably also agree that that was primarily the responsibility of the Scottish Executive, who did not play their part in trying to support the local Scottish industry. It would be interesting to hear the Minister’s response on what the UK Government said to the Scottish Government at a time of trying to support UK steel rather than Chinese imports.

[Stephen Doughty]

My hon. Friend makes a strong point and I would be interested to know the answer to that question as well. Many steelworkers and those who work in related industries throughout the UK want to see the Government standing up and backing the steel and metals industries here—not seeing major projects that could be generating wealth, jobs and opportunities in this country all ending up with Chinese products. I have already raised concerns about the quality and traceability of some of those products.

In conclusion, I will ask the Minister a few questions on which I would appreciate answers. I mentioned dumping by China and Turkey. Will he outline what representations Ministers at BIS have made to other EU member states, the European Commission and the Council on support for an anti-dumping measure?

Will the Minister outline whether there have been discussions on a UK Government responsible-sourcing requirement? Would he be willing to facilitate a meeting between the Chancellor of the Exchequer and colleagues concerned about these issues to discuss the use of steel in UK infrastructure projects and how procurement can drive the future of the industry?

Will the Minister clarify what assessment the Department has made of reports that Chinese rebar has failed British standards tests, given that much of the steel used in the past year on UK sites has been Chinese? Has he had discussions with other Departments about any risks to the future structural integrity of building and other infrastructure projects?

As I said earlier, will the Minister, with his colleagues, be generous and look again at the decision not to bring forward compensation packages to January 2015? That is crucial. Will he detail what discussions there have been in BIS on that and why it was decided not, for example, to make an encouraging announcement on that today in the autumn statement?

We have mentioned China and Turkey. Will the Minister give an assessment of reports that India is now also looking at subsidising its steel industry to compete with cheaper Chinese imports? What assessment has been made of the US Department of Commerce’s decision to impose anti-dumping and anti-subsidy duties on imports of carbon and alloy steel wire rod from China in reaction to a massive increase in its shipment?

Any one of the issues that I have outlined, in addition to those that I have not had time to mention, is enough to put serious strain on any business, but the cumulative effect is a matter of grave concern to the British steel industry. The risks are real and the threats are intensifying, so urgent and robust action is required from the Government. If capacity is put at risk, that could have serious consequences not only for the jobs and communities that depend on those industries, but for UK infrastructure priorities. I hope that today the Minister will give some encouragement to UK steel producers and their employees.

Steel Industry

Debate between Stephen Doughty and Tom Blenkinsop

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.