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Of The Future of British Steel By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

tataWhilst I usually tend to avoid writing on issues that have already been well covered on the front pages of newspapers and produced vast amounts of TV and radio media comment and analysis on this occasion I will make just a handful of points:

Firstly, I think that what Tata has decided to do in putting its UK steel interests up for sale rather than simply announcing that they were throwing in the towel on the Port Talbot, Shotton, Corby and Rotherham steel making operations in the UK clearly demonstrates that the company understands the importance of steelmaking in the UK, the political consequences of potential action whatever that might be and that, being a responsible and well-managed company and one that has other operations and activities here in the UK, having reluctantly accepted internally that it can no longer bear the cost of continuing in UK steel production steel that it does not believe the restructuring plan put forward by the Trade Unions is workable. But make no mistake, Tata wants to see and sensible and workable solution and one that will leave Britain with the level of steel manufacturing capacity that it desires. Tata in my view is determined to be seen as being a responsible for employer, one that will look after its employees to the best of its ability and one that fully recognises that the steel production remains a very important part of the UK national interest.

Secondly, I am pleased to hear that members of the UK and Welsh Governments have come together to say that they will essentially do whatever it takes to protect steel making at Port Talbot at least and that they too realise the importance of steel manufacturing in respect of this being vital to the national interest.

Thirdly, that the possibility of a management buy-out that might or might be achieved in combination with HMG and the Welsh Government working together in support and maybe, by each taking a sizable stake in a new organisation and by the governments guaranteeing future loans and maybe providing incentives for others to invest, has not been ruled out is very welcome.

Fourthly and perhaps most importantly, although I am wary about another buyer being found and even if it was fear that we might need to go down the same road again later, what I would really like to see like to see is a combination of Government, Energy Suppliers, Management and Tata itself coming together as partners in the ownership of what I will call here ‘new’ British Steel.

The reason why the UK steel industry and others in Europe are in such a mess is well understood by all of us. Oversupply, too much competition, falling demand, being uncompetitive and because of high energy costs in the UK, our industry costs being way out of line and so on. Then there are unanswered accusations of Chinese dumping making a bad situation worse. We only have ourselves to blame of course – the industry itself because of its low productivity, high cost and lack of competitiveness, European governments for allowing cheap Chinese steel to be imported so easily and past UK governments for allowing energy costs to rise out of control.

I dislike protectionist policies as much as the next man but I am old and wise enough to take the view that if the cap fits wear it. That European steel production requires rationalisation due to falling demand may or may not be true. That this crisis may last two or maybe three more years may also be true. That we all failed to understand how the Chinese and others have manipulated in one way or another oil, steel and other commodity prices and actual demand is taken for granted now. But countries such as France, Germany, the Netherlands and Britain must retain a strong position in steel manufacturing not least because it is in the national interest of each.

As far as I am concerned such is the damage that has been done to the steel manufacturing industries of many of the above that any EU rules applying to subsidising respective steel industries should be suspended with immediate effect.

And so too should we question all forms of imported steel. I keep asking myself for instance why on earth the new Forth Bridge that is currently being built in Scotland is using Chinese rather than British made steel! Forget that this happens to be being built in Scotland and for a moment just see this as a massive UK infrastructure project that is essentially being paid for by the State with no doubt, a little help from the EU. Why then is the UK government buying Chinese steel?

That said, whilst we must all understand issues that we are no longer competitive, that there is global oversupply, that there is surely a case for the Chinese to answer in terms of dumping cheap steel here and that the EU and domestic governments have so far done nothing about we must also take on board suggestions that the quality of the steel we produce here in Britain may not be as good as some of the steel that we import and that the market demands.

Steel Trade Unions appear to be acting very responsibly through all this. They are justified in fearing for the future of 15,500 Tata steel jobs in the UK but at the very least they have shown a willingness to accept the need for further restructuring. Come what may some restructuring will have to occur but in doing so we must take great care to ensure that we do not allow the industry to shrink to the point that it no longer maters.

Political expedience demands of course that HMG is seen to be working within existing EU rules but in this case I believe that we now have little or no choice but to do what the French would do in this sort of situation meaning that they would have no hesitation in putting the French national interest first and doing whatever they could to save their industry. Thus, on this occasion at least, my view is we must kick state aid rules into touch on the basis of determining that retaining sufficient domestic based steel production really is in the national interest.

Turning our back on this issue is certainly not an option. Neither is thinking that our aerospace, defence, engineering and automotive industries can get by buying steel from elsewhere. You can bet your last dollar that by the time the furnaces and lights went out on the last British steelmaking plant that the cost of steel would suddenly rocket.

I sincerely hope that a solution to the UK steelmaking business can be found over the next three weeks and my hope is that it involves many different players including HMG and maybe even Tata itself.

A final yet important thought: Whilst I do not necessarily believe the £1m a day loss being protested and that has become something of a watchword in this tragic affair I do believe that if the state aid issue really does become an issue that prevents government action that this really could become the final nail in the coffin of UK future membership of the European Union.

 

CHW (London – 30th March 2016)

Howard Wheeldon FRAeS

hwheeldon@wheeldonstrategic.com

Tel: 07710-779785

 

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