UK Steel: Decades of decline

The wave of steel factory closures in 2015 and 2016 contributed to one of the biggest falls in UK steel production ever recorded and the lowest level of output for over 80 years.

What caused this upheaval and what are the UK steel industry’s prospects?

Sliding down the rankings

In the late 1960s, the UK was the world’s fifth largest steel producer. Through the 1980s, the UK was around the tenth largest producer, and by 2015 the UK was the 18th largest producer. Steel production tumbled in 2016 and the UK slipped to 21st in the world.

By contrast, the world’s top steel producer in 2016, China, is up from eighth in 1967. India has seen an even steeper rise, from the 13th in the world in 1985 to third in 2016.

China dominates the intentional steel industry

  • China produced 50% of the world’s steel in 2016.
  • The next five biggest producers combined only produced half of what China produced last year.
  • Total UK steel production in each of the last 47 years combined was less than what China produced last year.

UK steel output has been falling for decades

The UK’s slide down the international steel output rankings is due to massive production increases in other countries and big falls in UK production, particularly since the 1980s.

In 1970 the UK produced 28.3 million tonnes of steel, compared with 17.8 million in 1990, and 9.7 million in 2010.

The fall in production last year was striking – the UK produced 7.6 million tonnes of steel in 2016 the lowest amount since 1933 and 31% down on the total in 2015. This was the biggest fall since 1980, when national steel strikes restricted production for part of the year, three major plants closed and around 20,000 jobs in the industry were lost.

What caused the big fall in UK production last year?

The economic environment confronting the steel industry in 2015 was bleak. Enormous growth in Chinese steel production since the early 2000s began to be accompanied by weakening Chinese demand. This lead to a glut of steel on the international market which pushed steel prices down.

UK based steel producers faced particular challenges because of unusually high industrial energy prices (almost 50% higher than the average in EU countries), high business rates and a strong pound (prior to the EU referendum) which made UK steel exports unattractive to foreign buyers.

In September 2015, Sahaviriya Steel Industries (SSI) announced its intention to close its Redcar steel plant, which included the second largest blast furnace in Europe and employed 1,700 people.

In the same week that SSI announced the final closure of the Redcar site, Tata Steel announced that it intended to “significantly reduce” its UK workforce. Over the next year, Tata reduced capacity at the Port Talbot plant in South Wales, its Scunthorpe plant and its plants in Scotland. By October 2017, all of Tata’s steel operations in the UK had been closed or sold to other operators, including the Scunthorpe plant to Greybull Capital (which rebranded as British Steel), and Port Talbot to ThyssenKrupp.

It is estimated that the reductions in capacity and closures of 2015 and 2016 resulted in the loss of 7,000 jobs in the UK steel industry.

The government’s response

The government announced a number of policies in 2015 and 2016 which aimed to make steel production more competitive in the UK, or to mitigate the impact of steel plant closures. These included:

  • Lobbying the European Commission to impose anti-dumping duties on Chinese steel imports. In July 2016, the EU announced that it would impose duties of between 18.4% and 22.5% for five years on imports of some Chinese steel.
  • Measures to encourage the procurement of UK produced steel in infrastructure projects.
  • Compensation schemes for energy intensive industries including steel, which were cleared under EU state aid rules in December 2015.
  • Creation of the South Tees Development Corporation to encourage economic growth in the area affected by the closure of the Redcar blast furnace.
  • Announcement of a ‘city and region deal’ for the Swansea Bay area to encourage growth in the area around the Port Talbot plant, which will include the new Steel Science centre to foster interaction between research and commercial steel operations.
  • A National Retraining Scheme (announced in the recent Industrial Strategy) which will provide assistance to people seeking to “up-skill and re-skill” so they can work in modern industries such as ICT.

Will the UK steel industry recover?

Even without the “dramatic upheaval” of 2015, the UK’s steel industry was small with a diminishing share of world production.

The trends that have driven the decline of UK steel for decades will not disappear soon: the biggest markets for steel are based far away from the UK; manufacturing is much cheaper elsewhere; the UK economy is better suited to services.

But some recent developments give reasons for optimism:

  • The fall in the value of the pound following the EU referendum means that UK exports are cheaper (although this also means that imports of raw materials more expensive).
  • The development of high value manufacturing clusters in parts of the UK (for example, aerospace in the North West) suggest that something similar could happen with types of steel manufacturing.
  • The UK’s workforce is high skilled, meaning that the UK is well placed to take advantage of the increasingly numerous industrial developments that require this kind of workforce.

Further information on the steel industry can be found in the Library briefing paper: Steel industry: statistics and policy.

Picture credit by Inna67895 (own work). Licensed under CC BY 2.0