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The future of the UK steel industry

19 April 2016

A new report from the University of Cambridge claims that British steel could be saved, if the industry is willing to transform itself.

The report, by Professor Julian Allwood, argues that in order to survive, the UK steel industry needs to refocus itself on steel recycling and on producing products for end users. He argues that instead of viewing Tata Steel’s UK exit as a catastrophe, it can instead be viewed as an opportunity.

Allwood’s report, ‘A bright future for UK steel: A strategy for innovation and leadership through up-cycling and integration’, uses evidence gathered from over six years of applied research by 15 researchers, funded by the UK’s Engineering and Physical Sciences Research Council (EPSRC) and industrial partners spanning the global steel supply chain. 

“Tata Steel is pulling out of the UK, for good reason, and there are few if any willing buyers,” said Allwood, from Cambridge’s Department of Engineering. “Despite the sale of the Scunthorpe plant announced earlier this week, the UK steel industry is in grave jeopardy, and it appears that UK taxpayers must either subsidise a purchase, or accept closure and job losses.

“However, we believe that there is a third option, which would allow a transformation of the UK’s steel industry.”

Instead of producing new steel, one option for the UK steel industry is to refocus itself toward recycling steel rather than producing it from scratch. The global market for steel recycling is projected to grow at least three-fold in the next 30 years, but despite the fact that more than 90 percent of steel is recycled, the processes by which recycling happens are out of date. The quality of recycled steel is generally low, due to poor control of its composition.

According to Allwood, today’s global steel industry has more capacity for making steel from iron ore than it will ever need again. On average, products made with steel last 35-40 years, and around 90 percent of all old steel is collected. It is likely that, despite the current downturn, global demand for steel will continue to grow, but all future growth can be met by recycling our existing stock of steel. “We will never need more capacity for making steel from iron ore than we have today,” said Allwood.

Apart from the issue of recycling, today’s UK steel industry focuses on products such as plates, bars and coils of strip, all of which have low profit margins. “The steel industry fails to capture the value and innovation potential from making final components,” said Allwood. “As a result, more than a quarter of all steel is cut off during fabrication and never enters a product, and most products use at least a third more steel than actually required. The makers of liquid steel could instead connect directly to final customer requirements.”

These two opportunities create the scope for a transformation of the steel industry in the UK, says the report. In response to Tata Steel’s decision, UK taxpayers will have to bear costs. If the existing operations are to be sold, taxpayers must subsidise the purchase without the guarantee of a long term national gain. If the plants are closed, the loss of tax income and payment of benefits will cost taxpayers £300m-£800m per year, depending on knock-on job losses.

Allwood’s strategy requires taxpayers to invest in a transformation, for example through the provision of a long term loan. This would allow UK to innovate more than any other large player, with the potential of leadership in a global market that is certain to triple in size.

Tata Steel UK (Credit: Shutterstock)
Tata Steel UK (Credit: Shutterstock)

He singles out the example of the Danish government’s Wind Power Program, initiated in 1976, which provided a range of subsidies and support for Denmark’s nascent wind industry, allowing it to establish a world-leading position in a growing market. Allwood believes a similar initiative by the UK government could mirror this success and transform the steel industry. “Rapid action now to initiate working groups on the materials technologies, business model innovations, financing and management of the proposed transformation could convert this vision to a plan for action before the decision for plant closure or subsidised sale is finalised,” he said. “This is worth taking a real shot on.” 

To read the full report click here.

Commenting on the outcome of the OECD’s meeting in Brussels on the steel crisis, Gareth Stace, Director of UK Steel, said:

“What we needed to see at the meeting was an agreement by national governments to take short term, detailed actions to help address the steel sector crisis. However, having agreed what the problems are we appear to be no closer to finding international action to put in place solutions.

“Governments must be prepared to come together to take rapid and decisive action to ensure we have a level playing field on which to compete fairly or, they may face the prospect of seeing their steel sectors wither on the vine and die. 

“This is a global problem which requires a global solution to remove current over-capacity and time is a luxury we don’t have. In Europe we have already been through very painful restructuring and must now look to others, including China, to take the same radical action.”

DPA Magazine recently covered some research conducted by the University of Bath. It details new imaging technology that could help save the UK/EU steel industry.

The ‘Shell-Thick’ project will develop an innovative induction tomography system for assessing the solidification process of metal. This new system will significantly improve the continuous casting process of steel by providing a real-time, non-destructive and reliable method of measuring the molten steel to detect any defects or fails as it solidifies and becomes a market product.

To read the full article click here.

Confirmed on 21 April, the UK and Welsh governments are offering a package of support worth hundreds of millions of pounds on commercial terms to potential buyers of Tata Steel UK. 

Dr Manuch Soleimani is leading this three-year project to develop an innovative new technology which will enable the UK & EU Steel Industry to become more competitive and sustainable. (Credit: University of Bath)
Dr Manuch Soleimani is leading this three-year project to develop an innovative new technology which will enable the UK & EU Steel Industry to become more competitive and sustainable. (Credit: University of Bath)

The financial support package will be tailored to the purchaser’s strategy and financing needs. However, it is expected that all, or the large majority, will be through the provision of debt financing. Other options include:

• providing hybrid (convertible debt) or alternative forms of financing

• supporting a purchaser’s financing by taking a minority equity stake (up to 25%) acting in support of the purchaser; however, government will not acquire a material element of control over the business

Commenting on the announcement of a financial package for the steel sector, Terry Scuoler, Chief Executive of EEF, the manufacturers’ organisation, said:

“This is a welcome and extremely positive statement of intent. The Government has said that it is committed to the importance of the steel sector in the UK as a strategic national asset and this announcement shows that it is prepared to put money and action in place to back its words. 

“This should put in place the building blocks which should encourage potential investors to come forward to co-invest with Government to ensure a viable future for the steel sector in South Wales and, in the wider UK.”

Gareth Stace, Director of UK Steel, added:

“We have been calling for Government to step up to the mark and provide this type of financial commitment and backing. This is a positive first step which will provide the certainty and continuity that should enable credible investors to come forward and provide a sound future for steel making in the UK.”

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