Energy policy is putting the British steel industry at risk

By Paul Homewood   

 

http://www.telegraph.co.uk/finance/newsbysector/industry/11944107/Energy-policy-is-putting-the-British-steel-industry-at-risk.html

 

From the Telegraph: 

 

 

The loss of so many jobs in the UK steel industry in such a short period of time is nothing short of a tragedy. But much of the finger-pointing that has accompanied news of the Redcar plant closure by SSI, lay-offs by Tata and Caparo falling into administration is misplaced.

True, the proximate cause for the latest crisis has been a slowdown in the growth of the Chinese economy and its decision to dump surplus steel on the global markets. But Russia, Brazil and Japan (which is the world’s second-largest producer) are also deploying similar tactics. Equally, the UK steel industry benefited from the increase in demand and the spike in prices during China’s bull years. You can’t take the good parts of globalisation and leave the bad.

China is responsible for around a half of global steel production each year – roughly the same market share as the UK industry commanded during its Victorian pomp. Nowadays, China’s overcapacity – what it makes but can’t use – is thought to be around 20 times more than UK annual production. There’s no fighting against forces of that magnitude.

The economic arguments are irrefutable – British steel production (especially that based on old-style blast furnaces) doesn’t make sense; the strategic arguments are more nuanced.

 

 

Is it a problem if the UK has to import all of its steel? Most of the time, no. But there’s always a chance we’ll suddenly be in need of, say, a few more battleships, aircraft carriers and submarines. At which point we’ll just have to hope our allies have retained their steelmaking capacity and wouldn’t mind dreadfully sending us some.

If it’s in the UK’s strategic interests to keep its steel industry alive, then the question becomes whether there’s the political appetite to do so.

The main threats to the UK’s steel industry come from a strong pound (which makes British exports more expensive), a reduction in Chinese demand and hence an increase in global oversupply (which has resulted in prices halving over the past four years), and high energy costs. In reality, there is little that can be done about the first two.

But British steelmakers pay nearly twice as much for their electricity as their German and French rivals, according to the industry. And that’s many multiples higher than in China, which is somewhat less concerned about how much carbon dioxide it produces, and the US, which enjoys an abundance of cheap shale gas.

 

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Dealing with this would require the UK government to row back on the green policies that slowly ratcheted up energy bills for British businesses. Ultimately it’s a question of priorities.

A couple of years ago, I asked the head of a large US fund management company for his opinion on the biggest risk Europe faced. I expected him to say Greece, or the euro, or something about our ageing populations. But he instantly alighted on European energy policy, labelling it “nuts”.

Those workers in Scunthorpe and Redcar who have recently been laid off would likely agree.