Background to the British steel industry
Steel constitute essential aspects of most elements of everyday life. Steel supports a broad range of businesses and practices. In the UK for instance, steel contains a key ingredient for various industries. Steel is used in various strategic processing and building supply chains.
Collectively, these industries embody 20 percent of those engaged in the production sector across the UK and create Gross Value Added (GVA) of £24.6bn (Bowler, 2016). The global steel industry in the UK is faced with extremely tough economic circumstances. Steel overproduction globally stands at thirty-five percent. This has seen the closure of several steel production plants in Europe.
Moreover, workers in the steel processing industry have fallen by seventy thousand. While demand for steel has not reverted to pre-crash levels, the cost of steel has dropped by 50% over the last few years. These uncertain times have culminated in some organisations having to assume severe commercial pronouncements. These consist of the closure of the SSI UK factory at Redcar, and innumerable layoffs at factories operated by Tata Steel UK and others (Simpson, 2012).
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As of 2014, the UK steel industry hired about 34, 500 workers from 465 areas and had an economic output of £1.7 billion. This type of placement is spread unequally across the UK, with fifty percent in Wales, Yorkshire and Humberside (Bowler, 2016). As such, the UK steel sector supports not only a collection of domestic industries but fundamentally local communities.
Whereas the steel industry has many benefits to the community, the product is subject to competition from any other in the market economy. The current crisis can therefore, be examined from a global and historical context. The UK steel business has withered significantly over the last four decades when it comes to production and job placement (Tovey, 2015). Conversely, other nations have enhanced capacity considerably.
In the previous decade, global steel production has gone through expansion, with overall production snowballing by ninety-six percent between 2000 and 2014. This escalation attributed for by China whose steel fabrication has increased four times since the turn of the century (Williamson, 2016). For the last forty years, steel production in the UK has fallen behind its competitors like France, Spain, Italy and Germany. Based on similar production, European nations, for instance, have put a premium on the domestic steel industry.
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The role of government in handling the current crisis
During the crisis, the government took the centre stage and worked proactively as well as intensively to assist the British steel sector (Soubry, 2016). For example, the government hosted a steel conference to discuss the way forward with leading players in the industry to recognise the importance of steel firms among the locals. Other areas where the government has played a significant role are listed below;
Business rates
On business rates and steel firms, they are about 5 to 7 times compared to other rival nations in Europe. On the other hand, UK steel firms believe that there is a need for the government to remove investment machinery, as no measure has been taken. While such a move is associated with inexplicable effects, any adjustments of business rate would require transferring it to another sector. Because this issue will take the time to review as the local authority keep rates levied from organisations, there is no likelihood an immediate response as well as uncertainty regarding the government’s role to assist the sector in fulfilling these costs (Soubry, 2016).
Again, the government does not need EU to review business rates to provide an equal business field for all steel makers across the UK. Eliminating machinery from these rates may indicate the government’s dedication to rebalance the economy, increase the attractiveness of UK to domestic investors in production and maximise the sector’s output, and competitive edge by investing in sophisticated tools.
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Procurement
Currently, the government is discussing procurement policy to assist steel manufacturers in the UK to compete for major contracts. By late last year, the government had published standards to put into consideration when purchasing steel. This attempt is likely to enhance opportunities for suppliers while assisting steel manufacturers level fields to compete with global providers and spur rivalry.
These standards aim at helping the government use a strategic and open method to source steel in critical projects. It is practical to put tendering provisions best on these elements without necessarily violating stand laws, and this flexibility is a regular application in other nations. The government role in adjusting procurement standards is necessary is increasing the probability of UK steel organisations access bigger projects.
Nonetheless, the effects of these adjustments will take a long period to occur. Moreover, the government needs to take an active role in promoting the use of UK steel in projects especially, public infrastructure (Tovey, 2015).
Rewarding SSI employees
The government promised to pay employees following the closure of Redcar steelworks and the bankruptcy of SSI. The compensation amounted to 80 million euros, however about 30 million euros would be in rewards as statutory redundancy (Soubry, 2016). Much as the government is committed to rewarding SSI employees, the figures are mainly estimates since the actual spending will rely on demand and a person’s conditions.
Government’s move to assist the affected is vital, although its response highlights in rewarding and retaining individuals that lost their employment opportunities, rather than protectingassets that are of great significance to the nation. Much as the government has a role in protecting the affected, there is no proof in terms of attempts to save Redcar steelworks from closing.
The employees who lost their jobs were prioritised and encouraging providers to assist in the distribution of funds; it is not evident whether these funds are adequate to support not only economic redevelopment but also the needed retraining. In fact, the response of the government should be determined not by some funds located and the number of affected workers.
Macro-environment
Political factors
In the steel sector, the government play a significant function. For instance, the UK government imposes tariffs as well as barriers to protect domestic producers. Nonetheless, with Free Agreement Agreements (FTA) this function has been minimised. The UK government also offer tax holiday (subsidies in certain nations) to support the expansion of the sector. Moreover, governments streamline domestic and global environmental standards to minimise emissions while protecting the environment.
On the other hand, the government of India has initiated National Steel Policy to reduce the demand and supply gaps. Based on this policy the government gives the steel industry various incentives such as infrastructure, reduced duty and land. Since steel sector in India, the government has maximised sales tax from 15 to 20 percent while 75% of foreign direct investment (FDI) is permitted to present different concessions related to customs duty (Tovey, 2015). Nevertheless, with the current state of infrastructure in India is not adequate for the steel industry.
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Economic factors
Population growth, particularly in Russia, India, and China, has contributed to the high demand for cars, building and other infrastructural facilities that subsequently result to increase in demand for steel products. Consequently, the ballooning of different economies that permit duty-free imports have accelerated the demand for steel. However, with the current crisis, GDP is growing slowly (Robinson, 2016).
Social factors
Steel sector provides employment opportunities to many; nonetheless, it divides a region into rural and urban areas since it is a certain area leading to its development. This sector plays a significant role in developing rural areas that in turn improves the living standard of the rural masses.
Technological factors
The steel industry is still using conventional technology. Steel companies use a considerable amount of energy, and the rising fuel cost is pushed producers to adopt efficient steel production techniques. Furthermore, technology is vital in manufacturing quality steel items.
There is a lack of creativity when it comes to production, steel companies use electric furnace in production, but due to fluctuating energy, a significant proportion of the raw material is wasted (Wakefield, 2015). Technologies which are used are outdated; however, India’s Sail steel is planning to merge with PASCO to use modern technology.
Environmental factors
While steel industry is crucial, it creates adverse conditions to the environment. Moreover, many steel firms use pollution control as well as energy saving tools, which are not adequate to control the pollution. Nevertheless, certain steel companies across the world Like Tata uses environmentally friendly equipment in the production process to minimise carbon dioxide emissions (Simpson, 2012). In fact, the company has Ultra-low carbon steel manufacturing for reducing emissions in the atmosphere.
On macro environment factors,the steel industry appears weak in general. Also, the macro-environment factors surrounding the current crisis demonstrate a positive change in growth in particular nations. Much as the global economy is experiencing uncertainties, fluctuating cost of fuel may maximise economic development especially in oil-importing countries (Keir, 2016). Growth in the international steel sector has almost stopped.
With the increase of approximately 0.6 percent two years ago, demand was restrained at roughly 0.5 percent with a recovery of 1.5% in 2016. Main steel industries recorded a relatively high productivity in 2015, and the same is expected in 2016. In the case of the uncertain market, some steel manufacturers are reducing production. Similarly, various steel projects have been achieved, and manufacturing started (Wakefield, 2015). Net importing countries continue to increase capacities.
Owing to weak demand for steel, the pricing for primary raw materials have been plummeting are likely to remain low. The cost of steel has been decreasing following excess steelmaking capacity and nose-diving raw material costs. The recent drop in oil costs has impacted steel prices, especially for tubes and pipes made from steel (Keir, 2016). Negligible revenues have led to a dwindling in the industry’s revenue over the last few years, with slight rebounds anticipated shortly.
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Recommendations
Based on the above analysis, the government is dedicated to providing an equal ground for steel producers in the UK. As such, British steel should take advantage of this move and increase its attractiveness to domestic investors so as to enhance competition, productivity and efficiency through investment in sophisticated equipment.
British steel should not rely on government support, regardless of how essential they may. However, British Steel is entitled to government support particularly regarding domestic laws allowing them to compete effectively with other European nations and at the global level when it comes to securing major projects.
In fact, British steel should collaborate with the government to recognise the magnitude at which other industries are threatened due to national guidelines. Therefore, British steel should establish mechanisms for working with other industries and ways of ensuring that they promptly respond to a crisis before they cause damage.
With regards to procurement standards, which have been amended, British steel should say comprehensively how such rules are beneficial to the sector and the supply chain by expensive procurement decisions. Furthermore, the British steel should initiate and develop internal R&D ability to constantly;
- Reinforce production technology to ensure the sector is environmentally sustainable and efficient
- Look for tactics to convert by-products to energy that may be recycled, this will reduce energy expenses while generating additional income for steel industry
- Look for an alternative material, an aspect that will minimise dependence on metal.
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Conclusion
In a nutshell, this analysis demonstrates that the UK government recognises the steel sector as a key industry. However, past governments lacked an effective strategy to detect and tackle the crisis. Following the closing of Redcar steel, the UK leadership has attempted to respond to the effects of such closures in terms of policy framework at the local and global level.
Nevertheless, increased support has not contributed to a quantifiable effect for industry players as well as the community. Nor is the measure in place is adequate to present future certainty. As such, the UK government should collaborate with steel sector to adopt sustainable strategies for steel producers.
Bibliography
Bowler Tim. 2016. Britain’s steel industry: What’s going wrong? Accessed on 2nd of March, 2016 at http://www.bbc.com/news/business-34581945
Keir Mudie 2016. How the UK steel industry crisis and worldwide slump in oil prices will affect YOU. Accessed on 2nd of March, 2016 at http://www.mirror.co.uk/news/uk-news/how-uk-steel-industry-crisis-7232861
Robinson Martin 2016. British steel industry enters ‘death spiral’ after another 1,000 jobs are axed. Accessed on 2nd of March, 2016 at http://www.dailymail.co.uk/news/article-3404832/British-steel-industry-enters-death-spiral-1-000-jobs-axed-Government-sits-hands-critics-say.html
Simpson, Rob 2012. “Tata Steel restructures to improve the competitiveness of UK operations through market cycles. Accessed on 2nd March. 2016 at http://www.tatasteeleurope.com/en/news/news/2012/2012_tata_steel_restructures
Soubry Ann 2016. Statement on the UK steel industry. Accessed on 2nd of March, 2016 at
https://www.gov.uk/government/speeches/statement-on-the-uk-steel-industry
Tovey Alan. 2015. Steel crisis ‘strikes to heart of UK manufacturing’ Accessed on 2nd of March, 2016 at http://www.telegraph.co.uk/finance/newsbysector/industry/11944254/Steel-crisis-strikes-to-heart-of-UK-manufacturing.html
Wakefield, Adam. 2015. Steel Industry in Crisis. Accessed on 2nd of March, 2016 at http://www.fin24.com/Economy/Steel-industry-in-crisis-Jim-20150824
Williamson David 2016. Warning that China is trying to ‘kill off’ the UK’s steel industry. Accessed on 2nd of March, 2016 at http://www.walesonline.co.uk/news/politics/warning-china-trying-kill-off-10771302
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