Despite having sufficient capacity to provide the millions of tonnes of steel needed for the country’s green energy infrastructure drive, UK steelmakers fear for the future if they are not protected against cheap imports and spiraling production costs in their journey to carbon neutrality.
Growing demand for steel
Tata Steel UK calculates that about 10 million tonnes of steel will be required for future “clean and affordable” energy projects as part of the government’s Energy Security Strategy announced last year.
And on January 3, Tata Steel UK said that more than 5 million tonnes of steel will be needed to build thousands more wind turbines if the UK is to meet the government plan to expand offshore wind capacity from 12GW to 50GW by 2030.
It said that planned solar and nuclear power facilities would require about 3.5 million tonnes of steel in the coming years and an estimated 1.5 million tonnes of steel will be needed for hydrogen production and distribution infrastructure and for carbon capture projects.
“If the domestic steel industry in the UK is supported in its transition to low-carbon technologies, there is no reason why the vast majority of steel for future green energy and infrastructure projects in the UK [should not] be sourced locally,” a Tata Steel spokesperson told Fastmarkets.
“This would not only be positive for UK manufacturing supply chains and the economy more generally, but it would also have environmental benefits [by] being locally sourced and manufactured using the best available technologies.”
As of December 2022, the UK steel sector produced 7.2 million tonnes of crude steel a year, which equates to around 70% of the UK’s annual requirement of 10.5 million tonnes a year, according to trade association UK Steel.
Tata Steel UK’s chairman Henrik Adam described the government’s plans to expand and secure the UK’s domestic green energy supply as “crucial” amid disruptive global events and trade issues in recent years.
But Adam said that, like the lessons learned in regard to the UK’s energy supplies, the country must not be overly dependent on foreign sources for its steel supplies.
“[The UK] steel industry is at a crossroads,” he said. “If we do nothing, we risk it declining [with orders] drifting away to other countries. Down the other path is a new era in which we transform the steel production process to make it fit for the 21st Century.”
The UK’s Department for Business, Energy & Industrial Strategy (BEIS) has a steel procurement plan that estimates a somewhat smaller figure of 8.4 million tonnes of steel will be needed over the next decade for the development of clean energy projects and for upgrades to roads, broadband and other infrastructure.
But despite working closely with the industry to secure “a sustainable and competitive future” for the UK’s steel sector, a government spokesperson told Fastmarkets that the supply of steel for future green projects will be “subject to open competition” with international suppliers to “ensure better value for money for the taxpayer” – while simultaneously facilitating reciprocal rights for UK suppliers to participant in procurement exercises overseas.
A level trading field?
UK steelmakers have traditionally faced the highest industrial electricity prices in Europe, with the current energy price crisis further exacerbating the difference in costs, UK Steel said.
But despite the extension of the government’s Energy Bill Discount Scheme on January 9, the trade body raised concerns that the support “falls short” of that of competitor countries such as Germany – estimating that local producers will be paying 63% more for power in 2023 than their German steel industry counterparts.
“This situation will maintain [the] long-standing competitive disadvantage for UK producers, resulting in higher production costs and a reduced ability to compete this year,” UK Steel’s director general Gareth Stace said on January 9.
UK Steel expressed similar concerns in a September 2022 report after the non-departmental public body, the Trade Remedies Authority, recommended the removal of UK steel safeguards and duties preventing the dumping of Chinese construction steel.
The road to net zero also presents challenges to the competitiveness of UK steel producers, with many of their counterparts around the world not subject to the same pressures to decarbonize.
UK Steel said in the September report that the transition to carbon neutrality will increase production costs and require unprecedented levels of investment and government support to ensure UK steelmaking remains competitive.
“In the short term, it is vital we see immediate action taken on spiraling carbon costs which are pushing up the cost of production, placing a cap on increases in steel production while, counter-intuitively, having a detrimental effect on low-carbon investment,” the trade association said.
Struggling UK Steel sector
The push to decarbonize amid tough economic times and high production costs resulted in mills producing steel at below market prices last year, with some steel companies forced to cease production at key times during the day in December of last year due to spiking electricity prices, according to UK Steel.
The challenging circumstances also resulted in major producers in the UK requesting government support last year.
India’s Tata Steel Group sought £1.5 billion ($1.61 billion) in government subsidies to help reduce carbon emissions at its UK operations, warning that without the support it might be forced to shut down its blast furnace-based steelmaking operations at Port Talbot in Wales – the largest steel mill in the UK.
The company said that weak market conditions, increasing production costs and significant pressure to move towards more sustainable methods of steel production could mean business becomes unviable for Tata Steel in the UK.
British Steel, the UK’s second-largest steelmaker, which runs the only other blast furnace steel plant in the country, at Scunthorpe in north Lincolnshire, England, also sought financial support from the government last year to keep its two furnaces operational.
“To make sure we can deliver the steel Britain requires, we’re undergoing the biggest transformation in our 130-year history,” a British Steel spokesperson told Fastmarkets.
Chinese company Jingye, which acquired British Steel in 2020, has so far invested £330 million in capital projects to support the steelmaker in its transition to net zero, with major ongoing projects including the installation of a new billet caster and a mast service center, both of which are scheduled to come online this year, the company said.
“Jingye [is] committed to our long-term future, but we also require the UK government to provide the necessary support, policies and frameworks to back our drive to become a clean, green and sustainable company,” the British Steel spokesperson said.
“We’re continuing formal talks with the government about decarbonization, along with the global challenges we currently face,” the spokesperson added.
No further details of government support for the UK’s steel company’s has been released, but a spokesperson for the British government told Fastmarkets that it remained committed to a decarbonized and sustainable steel sector and said it continues working to support decarbonization options, with competitive funds worth more than £1.5 billion available to support green innovation across the industrial sector.
“We are in discussions with the UK steel sector to secure a sustainable and competitive future,” a government spokesperson said. “But [we do] need to find the right balance to achieve a long-term sustainable businesses, while [at the same time delivering] value for money for taxpayers.”
Published by: Holly Chant