好色先生TV

Steel is the industrial story that has dominated April鈥檚 news headlines.

Like coal and cars, steel manufacturing has a special role in the UK鈥檚 industrial psyche and as a result, says Simon Rawlinson, head of strategic research and insight at Arcadis, 鈥渁 disproportionate pull on the political agenda鈥�.

But deteriorating financial performance on the back of worsening trading conditions and high manufacturing costs has forced Indian parent Tata to put its entire UK business up for sale.

It鈥檚 easy to see what went wrong: global oversupply has meant that cheap imports, mainly from China, threaten to cut the UK steel industry off at the knees. Tata, reported to be losing up to 拢1m a day in its UK steel business - which includes the Port Talbot plant in south Wales - said enough was enough.

So what now? The group has already sold off two plants in Lanarkshire to the Scottish government, which has in turn sold them to commodity group Liberty House - the company also being touted as the possible saviour for the rest of Tata Steel UK. It is also selling its Scunthorpe-based construction steel business to investor Greybull Capital.

The deal, which is expected to be wrapped up this June, will see Greybull acquire all of Tata Steel鈥檚 European Long Products business - in effect its construction steel arm which employs 4,800 people - and rename it British Steel. The deal includes the steel works in Scunthorpe and two mills in Teesside. Not surprisingly, this has been hailed as the 鈥渂est possible outcome鈥� for the business by Bimlendra Jha, executive chairman of Tata鈥檚 Long Products Europe business - presumably because the alternative was closing it down.

The government is also pleased, and business secretary Sajid Javid says the government has been 鈥渃losely involved in the [Long Products] sale process from day one, including making a commercial offer on financing if required鈥�.

Having less steel production in the uk is hindering the supply and the security of steel for commercial and infrastructure projects

Noble Francis, CPA

Buy British

But of course, it鈥檚 a mixed picture. Greybull has promised to pump 拢400m into the business - which it says it will raise from shareholders and banks - but in return it has asked staff to take a one-year 3% pay cut and accept changes to their pension scheme.

Unions have told staff to agree to what鈥檚 on offer. But they want the government to level the playing field for the industry - including a proposal to use as much homegrown steel as possible in big infrastructure projects such as HS2. The government has said it has asked the public sector to 鈥渟pecifically consider鈥� British steel when procuring steel contracts.

Many are sympathetic to the idea, but not convinced a policy of 鈥渂uying British鈥� will work. Ian Lawson, chief executive of the UK鈥檚 biggest steel contractor, Severfield, says encouraging people to buy British is 鈥渁bsolutely the right thing to do鈥� but, speaking to 好色先生TV just before Greybull made its move, pointed out: 鈥淎t the end of the day, businesses, whether it is in the public sector or private sector, still have budgets that they have to work to.鈥�

And the Construction Products Association鈥檚 economics director Noble Francis warns that the new government guidance is unlikely to make much difference, as over half of the UK鈥檚 infrastructure projects are funded by the private sector - where the government has no say over how budgets are spent.

Javid himself has admitted that private companies 鈥渁re not subject to all the rules around procurement鈥� but says: 鈥淭here are ways to encourage them to invest more in British steel and that鈥檚 exactly what鈥檚 happening.鈥�

Javid uses infrastructure projects as examples where UK projects have been doing their bit and says Crossrail鈥檚 26 miles of tunnels have used 鈥渁lmost exclusively British steel鈥� while Network Rail every year buys 1,500 miles of steel from Tata in Scunthorpe. 鈥淭hat鈥檚 enough to build a two-track line from London to Edinburgh,鈥� he told a House of Commons emergency debate on the issue last week.

Network Rail chief executive Mark Carne chipped in too, saying the company plans to continue using steel from Scunthorpe in its railway upgrade plan: 鈥淲e have been in talks with Greybull Capital for some time and they have assured Network Rail that they will continue to provide the level of service we鈥檝e come to expect from Tata Steel.鈥�

This collective mucking in all sounds good but Severfield鈥檚 Lawson for one remains to be convinced. He is worried that forcing clients to use expensive British steel could push developers to use a different material altogether - such as concrete. 鈥淭his won鈥檛 help the industry either,鈥� he adds. 鈥淧rivate developers won鈥檛 pay the price of British steel if they鈥檝e got the option of buying cheaper steel from elsewhere.

鈥淩oughly only 40% of constructional steel used in the UK is actually sourced in the UK - 60% of steel used in construction buildings in the UK comes from overseas.鈥�

He argues that British steel is not uncompetitive - but simply a victim of Chinese undercutting. 鈥淭he Chinese are making steel at less than cost but they鈥檙e doing it to ensure they鈥檙e keeping their own people in employment and their government is subsiding it. Well, our government isn鈥檛 subsidising it and I鈥檓 sure won鈥檛 be subsidising it.鈥�

China is key in all of this. Javid admits there is no 鈥渙vernight solution鈥� to the issue of excess steel production. But at a crisis meeting in Brussels this week to discuss the global steel glut, he said China 鈥渁bsolutely recognised that it is a problem of overcapacity in their country鈥�. However, the meeting ended without any formal agreement. Some would be forgiven for thinking nothing was changed by the talks.

Cost

The CPA鈥檚 Francis says that costs will continue to be an issue for the UK steel industry because it costs more to produce here than elsewhere in the EU. 鈥淓nergy costs are 54% higher than the EU average.鈥�

In response, the government says measures to exempt energy-intensive industries like steel manufacture from renewable electricity costs will save industry 拢400m by the end of the current parliament.

The British Constructional Steelwork Association, which expects the UK structural steelwork sector to grow by 4% in 2016, says the issues 鈥渨ill not affect the structural steelwork sector鈥檚 delivery of current and future projects鈥�.

But current UK steel manufacture will not keep pace with growth which is expected in the medium term in key construction sectors, including commercial and infrastructure, and which will require 鈥渟ignificant steel use,鈥� Noble Francis says.

The industry imports, he says, and with that comes uncertainty. In short, there is less control over how much using steel will cost. An increased dependency on imports means more exposure to global price changes and exchange rates, leaving the UK price for steel 鈥渕uch more volatile, which means it鈥檚 much more difficult planning projects in advance especially when they鈥檙e large infrastructure projects. You have to price in that risk.鈥�

He adds: 鈥淚t鈥檚 not that it鈥檚 likely to stop projects from going ahead, it鈥檚 that it slightly changes the financial viability. It also increases the risk because by having less steel production in the UK what you鈥檙e doing is hindering the supply and the security of steel which you need for commercial and infrastructure projects in the long run.鈥�

And Gareth Stace, the director of industry body UK Steel, warns: 鈥淎ny further erosion of capacity risks the construction sector having to go further afield which risks loss of UK supply.鈥�

Simon Rawlinson says the current crisis might have some long-term benefits such as reducing waste, cutting back on over-specification and innovation in off-site construction.

Writing in 好色先生TV last week, Rawlinson spelt out what could happen in the future: 鈥淚nnovation in off-site construction, additive manufacture and the promotion of a circular construction economy could all help reduce to reduce waste and streamline the use of materials.鈥�

This chance to rethink the use of materials would certainly be welcome - but it鈥檚 a long-term and uncertain benefit to what in the short term is a very real problem.