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China’s Cheap Coal And UK’s Climate Policy Are Killing British Steel Industry

Andrew Critchlow, The Daily Telegraph

After 160 years, steel making on Teesside is in danger of coming to a full stop. But the root cause of its demise lies in China, not the North. One handicap facing British producers is the high cost of energy. Chinese steel mills benefit from cheap domestically-produced metallurgical coal and they do not have to meet any CO2 emissions targets.

The potential closure of the Redcar plant and the subsequent loss of 2,000 jobs will be a bitter blow for the region should the Government resist calls to bail out its Thai owners, Sahaviriya Steel Industries, with a £100m emergency loan.

Even if the Government did subsidise the plant, it’s unlikely that its long-term future would be guaranteed, as China is increasingly dumping its vast stockpiles of steel.

The demise of Redcar would raise doubts over whether the Teesside industry can survive. The region has been at the centre of British iron and steel production ever since industrial quantities of iron stone were first discovered in 1850 in the nearby Cleveland Hills.

The North East was an incubator for steel and iron magnates such as Sir Isaac Lowthian Bell, Sir Arthur John Dorman and Albert De Lande Long, who were behind the industry which underpinned Britain’s economic power in the late Victorian era.

By the late 1870s, Britain led the world in metal production, accounting for almost 50pc of pig iron output and 40pc of the world’s steel. But the subsequent gradual decline in the British steel industry accelerated after the privatisation of British Steel in the 1980s, when the Government refused to subsidise loss-making plants.

“Government can’t do anything about the slowing economy in China or the Chinese swamping our markets with steel at below market prices,” said Gareth Stace, managing director of UK Steel. “What government can do is support European initiatives looking into addressing these unfair trade practices.”

Since its economy has started to cool, China has been infiltrating international markets with more of its low-cost offerings. Steel exports from China are said to have increased by 28pc to 43.5m tonnes in the first six months of this year, despite production falling by 2pc.

To survive, Chinese steel mills are now selling overseas at a loss in order to maintain their production lines and to empty overstocked warehouses.

Chinese imports were 2pc of UK steel demand in the first half of 2011, a figure expected to rise to 8pc this year. Britain’s steel makers also face headwinds from a strong pound, high energy costs, environmental levies and high business rates.

Compared with China, Britain is now a minnow in terms of steel production. Chinese mills have an installed capacity of 1.1bn tonnes of metal per year, of which 340m tonnes is excess capacity. China’s crude steel production accounts for more than half of the world’s total. Its overcapacity alone is more than double the European Union’s entire steel production of 170m tonnes.

Demand growth for steel in Europe is also expected to slow this year after it picked up in 2014 along with the volume of imports, which now account for the majority of the UK’s supply. Across Europe, steel demand growth is expected to slow to just 1.5pc this year, which will add to pressure on the industry across the region.

According to UK Steel, imports accounted for 60pc of market share last year – compared with 56pc in 2013 – as British manufacturers have struggled to retain market share. Tata Steel UK, which owns the giant Port Talbot and Scunthorpe plants, posted a pre-tax loss of £768m in the year to the end of March, compared with a £354m loss last year.

In July, the Indian company said that it would have to lose over 700 jobs at its operations in Rotherham, in South Yorkshire, due to rising costs and competition from Asia.

The European Commission is investigating claims that both China and Russia are dumping unwanted steel on to Western markets, pushing many European metal smelters to the brink of bankruptcy.

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