Sunday, 3 April 2016

The Steel Wars

Steel has been in the news for a week, that alone is remarkable, but what is the story.

On the one hand people are calling for the steel industry to be bailed out like the banks, unfortunately this situation is not like the banking crisis and the government does not consider the steel industry a crisis concern. When it [the government] says 'we will do all we can', if they were then asked 'so you are going to save it', they would just repeat 'we will do all we can' which is a synonym for nothing.

A private concern called Liberty House are buying some of Tata's concerns in the UK but are unlikely to buy all as they only want to invest is specific parts of the organisation. The Labour party have called for Nationalisation which naturally the government are not considering.

There are other ways the government might support the steel business if no buyer comes forward soon. One option being considered by ministers is to "mothball" the blast furnace at Port Talbot. It is thought this would cost between £10m-£20m a month and would also involve laying off most of the workforce.

Another option, thought to have been part of a package put to the Tata board earlier this week, involves a buy-out by managers and staff at Port Talbot. While Tata called the plan "unaffordable" it might work with the help of government loans or loan guarantees, similar to the ones being considered in the sale of Scunthorpe to Greybull. Again the EU rules restrict what the government can do to help.

Does this situation bolster the Brexit campaign?

The industry blames cheap Chinese imports for a collapse in steel prices. It is certainly true that China's dramatic economic growth since liberalisation started in 1979 has been one of the key drivers in the global steel market. It is now the world's biggest steel producer. The UK, which produces almost 12 million tonnes a year, is a minor player in terms of absolute output, but has sought to specialise in high-quality, high-value steel products.

With China's market slowing, their producers have been looking for export markets, such as the EU.  This has led to accusations of unfair competition, that Chinese producers are "dumping" steel products on overseas markets - that is not just selling them cheaply, taking advantage of their lower production costs, but actually selling them at a loss.

The towards the end of this week China has risked raising tensions over its role in the UK steel crisis by imposing a 46% import duty on a type of high-tech steel made by Tata in Wales. The Chinese government said it had slapped the tariff on “grain-oriented electrical steel” imported from the European Union, South Korea and Japan. It justified the move by saying imports from abroad were causing substantial damage to its domestic steel industry.

News of the tariff emerged as David Cameron confronted the Chinese president, Xi Jinping, on the sidelines of a summit dinner in Washington on Thursday [31-Mar-2016] night, urging him to use Beijing’s presidency of the G20 group of leading countries to tackle the problem. This has yet to be responded to but one thing is certain, Steel is going to continue to be top of the news.

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