Goodbye to Britain’s steel industry?

Goodbye to Britain’s steel industry?

Britain’s steel industry seems to be in steep decline as evidenced by the recent announcement by Tata Steel that 1 200 will face job losses in Scunthorpe and Lanarkshire. Thailand’s SSI also recently announced that 2 200 will lose their jobs as a recent on the closure of its Redcar works. However, these effects are expected to ‘ripple’ through the economy, as other sectors such as scrap metal dealers, metal traders and steel processors are expected to face job losses as a result of these closures.

The pound is currently at a seven year high, resulting in its steel exports becoming uncompetitive as foreign manufacturers and construction firms switch to cheaper alternatives. Moreover, high electricity prices have also contributed to the high cost of production of the UK’s steel, decreasing its competitiveness in the global market for steel.

China’s slowdown has also affected the UK’s steel in several ways. With fewer Chinese construction firms demanding steel, China has become a net exporter of steel, rather than a net importer. It has been rumoured that China has thus been ‘dumping’ steel in the UK at prices below marginal cost, and so this has decreased domestic demand for the UK’s steel, which is relatively more expensive. These low prices have been compounded by the fact that the pound has weakened and so imports have become cheaper than before. These “unfairly low prices” are evidenced by the fact that the price of Chinese steel has decreased from $500 a tonne to $280 a tonne in the past year. This has corresponded to an increase in Chinese steel imports into the UK from 2pc in 2011 to 8pc today. The EU has already imposed anti-dumping duties for 6 months on certain steel imports from China and Taiwan, due to suspicion behind China’s motives.

Moreover, as China previously imported 50pc of the world’s steel, but now is a net exporter, this has resulted in global aggregate demand decreasing. Therefore, UK steel manufacturers are struggling to sell their steel on world markets and are left with surpluses. Furthermore, as global demand has decreased, prices have also decreased, resulting in steel manufacturers in the UK being forced to reduce production in order to remain profitable.

References:

http://www.bbc.co.uk/news/business-34581945
http://www.theguardian.com/business/2015/sep/28/british-steel-industry-buckles-under-weight-cheap-chinese-product-ssi-redcar
Image: http://i.dailymail.co.uk/i/pix/2015/10/20/23/2D9A935C00000578-0-image-m-32_1445380532666.jpg