News Room - Steel Industry
Posted on 04 Nov 2015
How China pushed British steel into decline
What China means for world steel today, Britain meant in 1875 with a nearly 50 per cent share of the global pig iron production and 40 per cent share of steel production.
That was the time when Britain would export the major portion of its
steel output to America and the rest of the world. But the once mighty British steel industry is now a tale of inexorable decline.Figures don't lie. According to the World Steel Association (WSA),
Britain made 18.95 million tonnes of the metal in 1988. In the three
years starting 2010, its steel production, facing the impact of global
recession, stayed below 10 million tonnes per annum. There were
improvements since then and production climbed to 12.065 million tonnes
in 2014.
The current year has, however, proved to be an unmitigated disaster for
British steelmakers and downstream groups engaged in activities like
pressing and forging the metal. September steel production was down 43.3
per cent on a year-on-year basis to 579,000 tonnes - a statement of the
deepening crisis in the country's steel industry with heavily
loss-making mills downing the shutters in rapid succession.
There already is a major Darwinian cull of British steel and steel
processing industry. Much of the remaining capacity is likely to go
under as world steel prices, down a third so far this year, are at their
lowest in over a decade.
A toxic cocktail of high energy bills, green taxes on emissions,
crippling business rates and a strong pound makes Britain a very
high-cost steel production centre.
A study jointly done by industry body UK Steel and
Labour MP Anna Turley finds British steel industry is "disadvantaged to
the tune of ￡480 million a year" because of these factors.
No wonder, then, imports last year met a record 60 per cent of the steel
demand of the country's manufacturing and construction industries.[PICTURE1]China gains ground
The Chinese steel industry, roiled by the slowest economic growth in the
country since 1990 which has caused a decline in steel demand, is under
increasing pressure to export the metal. In Europe, Britain is seen as
the softest target where bargain-hunting traders and consumers are
snapping up low-priced Chinese commodity steel in growing quantities.
Chinese steel is set to meet 8 per cent of the steel demand in Britain this year, up from 2 per cent in 2011.
China, the world's largest producer and user of steel, is nursing over
half of the excess global capacity estimated at 645 million tonnes by
OECD. But Beijing is not finding it easy to weed out all the "polluting
and uneconomic capacity" because of provincial concerns of unemployment
and social unrest.
Therefore, China continues with high production, even while WSA has
forecast the country's steel demand to contract by 3.5 per cent this
year and a further 2 per cent in 2016. Expect China then to remain an
aggressive seller of steel in the world market and British steel makers
will continue to feel the heat of imports.
China's record export of 11.5 million tonnes in September points to the
country finishing 2015 with overseas steel sale of 110 million tonnes
against last year's sale of about 94 million tonnes.
The British industry is crying foul that Chinese steel exports in most
cases amount to dumping, causing injury to local steelmakers. UK Steel
Director Grath Stace says: "Chinese steelmakers are fully subsidised by the Chinese government and their regions."
His contention finds support in a finding by Metal Bulletin, the
intelligence service provider, that China has made it a practice to sell
steel in the world market at 10 per cent discount to local prices.
This is the reason why some varieties of Chinese steel are repeatedly
falling foul of anti-dumping authorities in the US and European Union.
China, however, contends that the export success of its mills is because
they are ahead of most other steel producing countries in productivity
and cost effectiveness. It further says the fall in the prices of iron
ore and metallurgical coal has improved the competitiveness of Chinese
steel.
In an environment of high energy and wage cost and a strong currency
supporting imports, the undoing of British steel industry is its making
of basic commodity steel.
If anything, mothballing of Britain's second largest blast furnace at
Redcar by Thai owner Sahaviriya Steel and Scotland's 130-year-old plate
mill by Tata Steel, all engaged in making slabs, bars and rails, should
have happened earlier.
The market is so bad that groups such as Nippon Steel & Sumitomo,
ArcelorMittal, US Steel and Posco, focussed on making top-end
automotive-grade and grain-oriented electrical steel, are finding their
margins under increasing pressure.
Whatever noise British trade union leaders and MPs make, asking the
government to come to the rescue of mills, the fact is that British
steel has lost its strategic significance in terms of its share of GDP
and employment. The irony is the remaining resilient manufacturing
sector is not regretting the demise of British steel.
