As ministers struggle to get a grip on the steel crisis, The Northern Echo business team looks at the challenge to rescue one of Britain’s foundation industries

OF all the claims and conjecture about why the steel industry is in such trouble one fact cannot be denied – there is too much steel in the world, and that has been the case for some time.

Only two-thirds of the steel being produced is actually being used.

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It may be news to cabinet ministers happy to jet off to Australia with their kids while the industry battles for its future, but the steel crisis is nothing new.

Total world steel production increased 96 per cent between 2000 and 2014, mostly driven by China.

Slowing economic growth in China and other emerging economies means steel consumption has ceased to keep pace with the growth in production.

This has produced a surplus in steel in China, much of which has been exported.

The Northern Echo:

Since 2009, there has been a 300 per cent growth in Chinese steel exports, and the EU has seen a 50 per cent increase in Chinese steel imports over this period.

At the same time, the cost of overheads in the UK is high by international standards. Industrial electricity prices in the UK are more than 50 per cent above other major EU economies. Business rates are also high in the UK, and the strong pound has made UK exports less attractive.

All this has made international investors question how cost effective and sustainable the UK steel industry is in the long run. Tata has been desperate to offload.

This pushed prices down and magnified the comparative cost of steel made in the UK where overheads are higher than in Russia and Asia.

The EU’s statistics agency Eurostat reports for example that steel imports from China into the UK are on average 35 per cent cheaper than steel made here or imported from Europe. This has led to accusations that China is dumping its product – i.e. selling at unfairly low prices – which will eventually force British suppliers out of business.

In 1875, Britain accounted for almost 40 per cent of all steel made the world. We now contribute less than two per cent, whereas the Chinese produce more than 50 per cent of the world’s supply. About 300,000 fewer people work in Britain making iron and steel than 50 years ago.

The Northern Echo:

European makers have suffered too but Germany, France, Italy and others have weathered the storm better than Britain. The Business, Innovation and Skills Select Committee, in their December 2015 report on the steel industry, noted that the relative decline in UK steel production compared to other EU nations could be explained in the following way: “Other European countries have both better valued their domestic steel industry and have been able to withstand global competition more effectively than has been the case with the UK.”

To prevent the total annihilation of its domestic industry the UK has sought to specialise in high-quality, high-value steel products. One of the many reasons SSI Redcar was so vulnerable was that it made relatively basic steel slab – a commodity that can be sourced easily.

Some analysts have questioned the economic viability of the UK steel industry at all, but the Prime Minister has stated that the Government is committed to supporting this industry, which he describes as “vital”. His Government has faced accusations of being slow to react.

Charles De Lusignan, from the European Steel Association, said it had not done all it could and, indeed, had been instrumental in blocking a European Commission proposal from 2013 to remove restrictions on higher tariffs.

He said: “European Steel and UK steel is viable so there is no fundamental reason why it shouldn’t go on for the foreseeable future.

“But action should have been taken already. We find ourselves discussing a problem which should never have arisen and would not have arisen had we modernised trade defence instruments when we had the chance.”

The Northern Echo:

David Cameron insists that ministers have been working “for months” to save the industry, but warned there were “no guarantees of success”.

An estimated 40,000 jobs hang in the balance. Industry leaders have warned there may be no British steelmaking industry left by the end of the year.

The stakes could hardly be much higher.