UK Steel Industry Analysis and Trends

This assignment delves into the historical development, current challenges, and future prospects of the UK steel industry. It analyzes various sources including academic journals, news articles, and parliamentary reports to provide a comprehensive understanding of the industry's complexities. The focus is on identifying key factors contributing to its decline and exploring potential solutions.

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business

TABLE OF CONTENTS
Introduction......................................................................................................................................1
Background of the industry.........................................................................................................1
Key macro environment factors...................................................................................................2
Application of trade theories.......................................................................................................4
Role of government.....................................................................................................................4
Recommendations........................................................................................................................6
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

Introduction
Every business encounters with different contemporary international issues. These issues
puts a high impact on the functions of the company. The purpose of this report is to evaluate the
British Steel Industry. It reflects the key macro environmental factors which have led to crisis
within the industry. Further the role of the government will be highlighted in handling the crisis.
At last the report will end in making some good recommendations on the basis of the performed
analysis.
Background of the industry
Figure 1 Value of the British Steel Industry
(Source: UK steel industry: statistics and policy, 2016)
Steel is essential to the everyday life of the human beings. The production of steel is a
major key to the development of a sustainable world. It can be seen everywhere and lays the
foundation of the last 100 years of progress (Birch, 2013). The British steel industry makes a
valuable contribution to the economy. It provides employment to several people. In the year
2015, the industry contributed around £2.8bn to the UK balance of trade. Steel is the most
recycled material among all other goods. Most of the waste steel is recovered and recycled in
UK. It also gives a good amount of contribution to the overall GDP and exports (D'Costa, 2013).
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Figure 2: UK Steel Production (in million tonnes)
(Source: UK steel, 2015)
In the present context late 2015 and early 2016 has witnessed crisis in the industry.
Majority of the steel plants have been shut down. There is a decline in the productivity also as
the last production was only 12 million tonnes. The value has also been decreased by 24% since
the 1990. The demand for steel has not returned to pre-financial crash levels across the world.
The industry has been capturing the news headlines, however for the wrong reasons (Florence,
2013). It has been said that, it is going the on the edge of terminal decline.
Key macro environment factors
There can be many macro environmental factors that have led to the current crisis in the
British Steel industry. These are as follows:
Decrease in the global demand – The demand for the commodity has not reverted to the pre-
financial crash levels. At the global level, it has reduced a lot, falling by 1.7% in 2015 and rising
by only 0.7% in 2016 (Government not alert to UK steel industry crisis warnings, 2015). There
are no customers for the steel and that is the reason the production has decreased to a very high
level.
Strength of the pound – Another reason identified for crisis is strengthening pound. It is making
the British steel very expensive across the international markets. In 2015, pound reached to a
level, which it has never reached in the seven years (Bowler, 2016). The increasing value of
currency is making the purchasing of steel difficult for the buyers.
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Fall in the prices – At the same time, the prices for global steel has also reduced. The economic
slowdown has also lead the Chinese producers to look for export strategy. It is due to the fall in
the home demand. As a result a dramatic increase in the UK imports of Chinese steel have also
been noticed (Ma, S.H., Wen and Wen, 2014). The UK imported 687000 tonnes of steel from
China in 2014 as compared to 303000 tonnes the year before. However the imports from other
countries of EU are very high but China is selling the steel at very low prices.
High energy costs – Another factor which has led to crisis is high energy costs for energy-
intensive businesses. Manufacturers are required to bear very high expenses for electricity. It is
disturbing the budgets of the companies. There is a need to put a rest on it.
Competition from China – The industry is also facing high rate of competition from global
manufacturers. Most of it is coming from the side of the China. According to the experts,
Chinese steel is being sold in UK at very unrealistic low prices. It is evident from the fact that
according to Eurostat, imports from other EU nations cost on average 897 euros a tonne in 2014
(Heath, 2016). While on the other side import from China were just 589 euros a tonne. Such
activities are affecting the domestic steel market of the country.
Ignorance of Government – Another factor behind crisis in the industry is ignorance from the
side of the government. The BIS Committee in UK stated that authorities were not alert enough
despite of being the warning signs reflected by the steel industry (UK steel industry: statistics
and policy, 2016). There have been absence of effective warning systems, to identify and detect
the mounting issues within the industry. A lack of activeness was also noticed at the EU level.
Many questions were raised on the economic viability of the steel industry.
High environmental costs – Green taxes are excise taxes on the environmental pollutants.
According to the experts taxes on polluting emissions will reduce the environmental damage in
the least costly manner (Yellishetty, Mudd and Ranjith, 2011). It can bring changes in the
behaviour of those households and firms which can reduce the level of pollution at the lowest
cost. In case of steel industry, very high amount of environmental taxes were charged on the
production of steel. This has increased the costs for the companies.
Cut out of jobs – The industry provides employment to several people but the rate of
employment has decreased very significantly. At present 20000 people are employed in the
sector. This has reduced from 37000 people in the year 1994 (Johansson and Söderström 2011).
More than one in six are losing their job. For instance, the largest producer of steel in Britain, the
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Indian firm Tata has announced 1050 job losses within its operations. This job cut offs are
deeply affecting the towns and villages. The productivity within the industry has declined
drastically and this has led to crisis. The British Steel Industry cannot survive with absence of
skills and efficiency. Hence there is a great requirement of skilled people.
Application of trade theories
Different types of trade theories can be applied within the case of British Steel Industry.
These theories can be stated in the following manner:
Mercantilism – This trade theory emphasis that countries must collect financial wealth in form
of gold despite of things like living standards or human development. It states that exports must
be encouraged and imports must be discouraged (Ge, Isac and Guthrie, 2012). According to the
theory, country must have a trade surplus. In case of British Steel industry, government was
focusing on importing steel from China manufactures. However EU must focus on minimizing
the imports through tariffs and quotas. Exports can be maximized through subsidies and imports
can be minimized through tariffs (Wilson, 2013).
Theories of absolute advantage – It highly rejects the theory of mercantilism. It measures the
wealth of the country through the living standards of the people. The theory puts a question mark
on the objective of national governments to gain the wealth through restrictive trade policies
(Ma, S.H., Wen and Wen, 2014). In the case of British Steel industry, the government was
functioning on the basis of theory of absolute advantage as it promotes that trade between two
countries is beneficial. It can be argued on the fact that a nation should produce goods under
which they are efficient. On the other side it should trade for goods under which they are not
efficient.
Role of government
The role of government in crisis of British Steel Industry can be regarded very
controversial. The reports are highlighting the fact that government has not done adequate
enough to prevent the failures of the steel firms and job losses (Yellishetty, Mudd and Ranjith,
2011). The authorities were blamed for blocking a proposal related to removing of a European
Union rule. This rule reduces the punitive import duties which are charged on the Chinese
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producers. The government adopted a defending step with regard to blocking of the proposal.
They regarded the move as a refusal to engage in “protectionism”.
Under economics, protectionism is considered as the economic policy of putting
restrictions on trade between states or countries. The restrictions are placed by using different
types of approaches such as tariffs on imported goods, restrictive quotas, other government
regulations etc (Government not alert to UK steel industry crisis warnings, 2015). All these
approaches are designed to facilitate fair competition between imports and goods & services
which are produced domestically. The protectionist policy helps in protecting the rights of the
businesses and worker within a nation by regulating the trade with other countries. In the recent
years, protectionism has been identified as a very popular anti-globalization and anti-
immigration movement within the economic environment (Heath, The tragic decline and fall of
the UK’s steel industry, 2016).
Within the British Steel Industry, the government removes the lesser duty rule. This
removal reduces the taxes which can be added to the imported goods which are dumped in
Europe. Generally what happens is that ant-dumping duties are charged as the difference
between the market price in the exporting nation and the dumped price. However under the lesser
duty rule, they are charged at an assumed EU production prices along with the addition of
reasonable profit margin.
The European Commission introduced anti-dumping tariffs on the steel imports from
China. It has been said to be the major reason for fall of prices in the industry. The tariffs were
set at an average of 9% which is far less than the required to make the British Steel competitive.
It has been identified that China is receiving subsidies of worth around two third of the cost of
production (UK steel industry: statistics and policy, 2016). As per the calculations the tariff
should be more like 66 % despite of 9%. Many proposals were submitted by the Commission in
order to scrap the rule back but they were repeatedly blocked. The reason behind blocking the
measure that the government stated that removing the rule would led to “protectionism”. In case
of change in the rule, higher duties might be applied in other situations and sectors. Unequal
distribution of duties will also have an impact on the Britain and on the consumers of steel (Ma,
Wen and Wen, 2014).
Arguments have been said that government must support the removal of the lesser duty
rule otherwise British Steel Industry can lost its existence.
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Recommendations
On the basis of above analysis, different types of recommendations can be made with
regard to the crisis in the British Steel Industry:
 Government should focus on doing regulation on the dumping activities from the
companies of other countries. A more rigorous system of anti-dumping rules can be
developed which could stop the companies from other nations to sale steel at below
market rates within the EU.
 Firms within the industry should also focus on costs cutting. For that purpose different
types of costs improvement measures can be adopted. There should be cut down in costs
related to energy, electricity, assembling etc (Johansson and Söderström, 2011).
 The business rates are to be decreased and relaxation must be given to the heavy steel
producers in the carbon emissions targets. More compensation can be given for high
energy prices.
 Government is also required to adopt some effective measures related to the imports so
that flood of Chinese steel in UK can be controlled.
 Further a good level of integration and coordination is required in the efforts of
government and the European Commission (Yellishetty, Mudd and Ranjith, 2011). Both
of them should work with head to head and with strong communication.
Conclusion
From the above study it can be concluded that British Steel industry is in poor shape. The
value of steel has been decreased by 24% since the 1990 and its demand has not returned to pre-
financial crash levels across the world. Increasing value of pound is making the British steel very
expensive across the international markets. Chinese steel is being sold in UK at very unrealistic
low prices.
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References
Birch, A., 2013. Economic History of the British Iron and Steel Industry. Routledge.
Bowler, T., Britain's steel industry: What's going wrong?, 2016. [Online] Available through <
http://www.bbc.com/news/business-34581945>. [Accessed on 9th February, 2016].
D'Costa, A., 2013. The Global Restructuring of the Steel Industry: Innovations, institutions and
industrial change. Routledge.
Florence, P.S., 2013. The logic of British and American industry (Vol. 6). Routledge.
Ge, S., Isac, M. and Guthrie, R.I.L., 2012. Progress of strip casting technology for steel;
historical developments. ISIJ international. 52(12). pp.2109-2122.
Government not alert to UK steel industry crisis warnings, 2015. [Online] Available through
<http://www.parliament.uk/business/committees/committees-a-z/commons-select/
business-innovation-and-skills/news-parliament-2015/steel-report-pubished-15-16/>.
Accessed on 9th February, 2016].
Heath, A., The tragic decline and fall of the UK’s steel industry, 2016. [Online] Available
through <http://www.telegraph.co.uk/finance/economics/12106829/The-tragic-decline-
and-fall-of-the-UKs-steel-industry.html>. [Accessed on 9th February, 2016].
Johansson, M.T. and Söderström, M., 2011. Options for the Swedish steel industry–Energy
efficiency measures and fuel conversion. Energy. 36(1). pp.191-198.
Ma, S.H., Wen, Z.G. and Wen, Z.C., 2014. Mode of circular economy in China's iron and steel
industry: a case study in Wu'an city. Journal of Cleaner Production, 64, pp.505-512.
UK steel industry: statistics and policy, 2016. [Online] Available through <
http://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-7317>. [Accessed
on 9th February, 2016].
UK steel industry: statistics and policy, 2016. [PDF] Available through
<file:///C:/Users/user51/Downloads/CBP-7317.pdf>. [Accessed on 9th February, 2016].
UK steel, 2015. [Online] Available through
<http://www.eef.org.uk/uksteel/About-the-industry/Steel-facts/Trade.htm>. [Accessed on
9th February, 2016].
Wilson, J.D., 2013. Governing global production: Resource networks in the Asia-Pacific steel
industry. Palgrave Macmillan.
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Yellishetty, M., Mudd, G.M. and Ranjith, P.G., 2011. The steel industry, abiotic resource
depletion and life cycle assessment: a real or perceived issue? Journal of Cleaner
Production. 19(1). pp.78-90.
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