Foreign Competition
The most widely cited reason for the shrinking steel industry is foreign competition, especially from China. While it is certainly true, it is only a small part of the story. From 2014 to 2015, imports from China doubled from about 300,000 to 600,000 tons of steel. While that is a huge increase, the EU still provides the majority of imports with 3.7 million total tons in 2015. Chinese steel is significantly cheaper, about 20 to 30% less than EU and domestic steel. For that reason, it has gained share extremely quickly. Chinese production for sure has put a huge strain on the industry.
On the other hand, foreign investment has been a huge boon to the industry. Indian investor Tata is the largest steel producer in the UK. Thailand’s SSI is another large producer, although it is shutting its plant.
Demand
The biggest reason for the slowdown of the UK steel industry is the shrinking global demand. In 2016, the demand is set to fall by about 2% from the year before and it has been shrinking for the last two years as well especially as demand from China, Japan, the EU and the US slows. The demand from China is slowing due to the slowing of its overall economy. Japan demand is down due to protections in the economy and, like the EU and the US, a continued conversion to an economy based more on software, IP and services rather than production and heavy industry.
Energy Prices
Fluctuations in energy prices have hurt the industry as well. While the price of oil has gone down across the world, Brent Crude which primarily servers UK steel producers has not gone down as quickly. In addition, steel producers in other countries get energy subsidies which lower their costs below the cost to produce the energy, giving them a huge advantage. If the UK subsidized steel producer energy prices, it would definitely help the industry.
Technology and Automation
Technology has been both a blessing and a curse for the steel industry. Technology has created a way for the industry to lower costs and increase productivity. Mills are more competitive due to these new devices and management tools. However, new automated production and robots actually are at the heart of job losses. While the mills run cheaper, it is primarily because they are using less workers.
Conclusion
Overall, it seems that the industry will continue to shrink. However, there are several ways the industry could in fact stabilise or even grow. The government’s decisions will have a direct impact on the result. They have three main choices including whether they want to actively support the industry with subsidies and targeted tariffs, indirectly harm the industry by letting greater and greater competition and energy prices, or indirectly helping the industry with nationwide tariffs and devaluation of the currency. As the cases for supporting the industry may harm other Britons or industries, it may seem that the industry is indeed on its last legs and unfortunately, many of the 20,000 remaining workers may lose employment in the next few years.
