The problems afflicting the steel industry in the United Kingdom have been long in the making, but the announcement on March 31 by >Tata Steel that it was putting up its businesses for sale has all the markers of a survival crisis for the nearly 150-year-old industry that was once the backbone of British manufacturing.
Critics accuse Prime Minister David Cameron and his key ministers of sleeping at the wheel and ignoring the alarm bells of an industry on a downward spiral. After all, the reasons for the closure of SSI-Redcar in October last year — rising production costs and competition from cheaper Chinese steel imports — are no different from those that led Tata Steel to put its businesses up for sale this March.
Ratan Tata, former chairman of the Tata Group, said as much. “Over-invested and undermanned,” he said of the steel industry in Britain. Speaking in Washington, Mr. Tata, who is credited with his company’s entry into the U.K.’s steel market with the £6.2-billion purchase in 2007 of the Anglo-Dutch company Corus, said that the “bottom just opened up” at their U.K. steel operations owing to a rise in Chinese steel imports and falling domestic demand.
Business had been bad for the company, which claims that it was losing a million pounds a day at its plant in Port Talbot for several years. Coming on top of 5,000 job cuts in 2015, the group announced a further 1,050 job cuts in January this year. It sold its Redcar plant to the Thai-owned SSI in 2011 on the back of the termination of a large contract in 2009, resulting in the loss of 1,700 jobs. Its Scunthorpe plant, where 1,200 jobs were axed last year, has been on the market since 2014, and a sale to U.K.-based investment firm Greybull Capital has just been finalised — and welcomed by Roy Rickhuss, general secretary of the steelworkers’ union, Community. “So far, Tata Steel has honoured its commitment to be a responsible seller of the business by allowing time for the deal to be done," Mr. Rickhuss said.
The China factor A “perfect storm” is what the steel industry has become today, according to a House of Commons Committee on Steel (December 2015). The causes are manifold. First, the high cost of energy for British steel plants, the result of green levies. Then there is the factor of high business rates for steel businesses, which are seven to nine per cent higher than in other European steel-producing nations. There are also issues in project procurement where British steel loses to competitors. And finally, the issue ever in the spotlight, namely the allegations of unfair trade practices, notably the dumping of cheap steel by China.
Since 2009, total steel exports from China have quadrupled, resulting in a 50 per cent increase in Chinese steel imports into the EU, which is the U.K.’s principal trading partner. A good example of aggressive Chinese penetration is in the rebar (wire rod) sector where China increased its share in the U.K. market from zero at the start of 2013 to 37 per cent by the end of 2014. This resulted in the price of steel dropping from $500 a tonne to $280 a tonne between September 2014 and September 2015.
British steel has been un-competitive even in comparison with other countries of the EU. The EU accounts for 52 per cent of the U.K.’s steel exports, and 69 per cent of its imports. Tata reported in February this year that its European business suffered a quarterly loss of £68 million, more than double the figure in the previous three-month period.
In this situation, the wooing of China for investment by the government is particularly irksome to the steel industry. Steel unions are furious at the British government’s support for the lesser duty rule, a free-market formula that the EU adopted from the World Trade Organisation. The rule suggests that “authorities impose duties at a level lower than the margin of dumping”. Despite the obvious costs of dumping to British steel, the U.K. has, strangely enough, opposed the removal of the lesser duty rule at the EU, which resulted in the European Commission deciding to increase import duties on Chinese goods only by 9.2-13 per cent.
Selling responsibly It is in this rather bleak situation that steel unions and Labour Party MPs have called upon the government for its full backing of the industry — whether it is in underwriting pension funds, or even nationalisation of the industry if such a situation presents itself.
The British Steel pension fund, which is estimated to be in almost £500 million deficit, will emerge as the major obstacle in any deal to sell. Business Secretary Sajid Javid’s claims of a line-up of interested buyers after talks in Mumbai with Cyrus Mistry, chairman of the Tata Group, is at odds with the fact that there has been only one public expression of interest in buying Tata Steel’s asset, by Sanjeev Gupta, owner of the commodities company Liberty House.
Mr. Gupta’s offer comes with costs. In return for a turnaround in profitability and a no-retrenchment policy towards the 4,000-strong workforce at Port Talbot, Mr. Gupta wants the government to pick up the pension liability; Tata Steel and the U.K. government to insure him against clean-up and environmental liabilities; and exemptions from all green levies on energy costs.
The unions, however, are clear on what must be protected in any deal — jobs, pensions, and Port Talbot’s survival as a single entity. “When we tell the Tatas to be responsible sellers, we mean that they should sell to a party that keeps the whole business going,” a spokesperson of the unions told The Hindu . “It is a better and more attractive proposition if sold as a whole. Downstream businesses depend on Talbot, and it will be more profitable when together.”
parvathi.menon@thehindu.co.in
