The crisis in the steel industry has been 40 years in the making, people were saying almost a decade ago during one of Tata Steel’s earlier panics about its losses in the UK. And it’s true that the forces of globalisation, Chinese dumping of steel on world markets, weak tariffs and punitively high energy costs in the UK are not new. On top, one can add the fresh imperative to decarbonise a polluting industry.
But the Indian-owned company’s decision to close its two blast furnaces at Port Talbot in south Wales contains a genuinely new feature. For the first time since the creation of the industry, the UK will be left without capacity to make steel from scratch.
The replacement electric arc furnace (EAF) on the site, due to open in 2027 with the help of a £500m government grant, will be fed by recycled scrap. The only other blast furnaces, under Chinese ownership in Scunthorpe, are already due to close and be replaced by EAFs too.
The newer technology is cleaner, more efficient and requires substantially fewer workers. But, quite aside from the damage to the town of Port Talbot from the loss of up to 2,800 jobs, there is an enormous question of industrial strategy here. Can Tata’s new EAF, assuming it is built, really be a like-for-like replacement for the blast furnaces that will be lost? If not, is it sensible for the UK to leave itself without the capacity to make virgin steel? No other G20 country has taken that radical step.
Fans of EAFs argue the range of steel products that can be produced is wide and securing top grades is really a question of getting good-quality scrap; and, since the UK exports more scrap metal than it uses, supply should not be an insurmountable problem. Sceptics regard that description as too breezy: the output from EAFs is problematic for the automotive industry, introduces hidden costs and relies on a supply chain that may not be secure. A resilient steel industry, goes the argument, cannot bet the house on EAFs: it has to have the ability to produce virgin product.
Who’s right? Well, the point is surely that the government hasn’t seriously addressed the question. Ministers argue that Tata’s EAF plan offers the best route towards a “sustainable” steel industry, but you’ll search in vain for a detailed assessment of the economic consequences of giving up the ability to use raw materials to make steel. “Do we really want to be a country, given the dangerous and turbulent world in which we live, that isn’t able to produce its own steel?” asks Stephen Kinnock, Labour MP for Aberavon. It’s an excellent question.
The plan from the Community and GMB unions – rejected as unaffordable by Tata – was not an other-worldly proposal that imagined Port Talbot’s blast furnaces could keep polluting for ever, or that every last job could be preserved (just that compulsory redundancies could be avoided). It made the reasonable-sounding point that an EAF-only approach carries industrial risks and has uncertain benefits for global emissions reductions. For purer specialist grades, UK manufacturers may end up importing those volumes from blast furnaces elsewhere.
The unions’ proposal called for a two-stage decade-long transition to green steel. In stage one, only one of the blast furnaces – one that is near the end of its life anyway – would be closed and the other would keep producing until 2032. The output would be replaced by an EAF half the size of the model proposed by Tata. In the second stage, the other blast furnace would close but the choice of replacement technology would be kept under review. It could be direct reduced iron and hydrogen, the green steel technology that uses raw materials and is being widely adopted in Germany and Scandinavia.
“It is an industrial choice we are making as a country to get rid of blast furnaces,” says Jess Ralston of the independent analysts Energy and Climate Intelligence Unit. “The government keeps talking about energy security, but this move is not going to do anything for energy security. It is going to make it worse.”
In commercial terms, Tata’s hard-headed approach is understandable since the two unions said their proposal came with additional costs of £683m. If the government is not willing to offer further subsidies or cut a deal on energy costs, the numbers would have looked daunting from Mumbai. But, from a UK national perspective, a potentially huge step is being taken. Where is the analysis that a country the size of the UK, with an ambition to rewire its electricity grid and reboot its entire energy sector, can do it without virgin steel?
