Is there a future for UK steelmaking?

Ships have brought coking coal into Port Talbot’s deep-water port for 50 years to power the huge steelworks that dominate the Welsh town. Earlier this month, however, the port closed. They will no longer call ships because the plant’s two blast furnaces, which used coke to make steel, are closing.

Under a taxpayer-funded deal unveiled Wednesday between the government and India’s Tata Group, which owns Britain’s biggest steelmaker, the plant will replace the furnaces with a less polluting electric arc furnace, leading to the loss of approximately 2,500 jobs.

Both sides hailed the £1.25bn investment – ​​which includes £500m of taxpayer support – as the biggest for the industry for decades. Port Talbot has long been the UK’s biggest carbon emitter and the technology shift will be central to Britain’s efforts to meet zero climate targets. But whether steelmaking has a viable future in Britain – and in what form – still hangs in the balance.

Richard Tice, a UK Reform MP, said “the truth is, and the country needs to know this, the loss of these furnaces is due to the obsession of both main parties with net zero”.

Ministers are locked in talks over a similar funding package for China’s Jingye, which owns British Steel, the country’s second largest steelmaker. Jonathan Reynolds, the business secretary, admitted on Wednesday that talks with the company had become “very, very challenging”.

Jingye is expected to make an announcement about closing its blast furnaces at its flagship Scunthorpe site in Lincolnshire as early as next week, according to policy and industry figures.

The closure of the furnaces could prove to be a historic turning point for Britain, leaving the country without the ability to make steel from iron ore and coal for the first time since the Industrial Revolution. Electric arc furnaces do not require coal. Instead, they melt scrap or recycled steel.

The deal with Tata “shows the government is ready to hire big numbers, but there’s still a lot of work to do,” said Alasdair McDiarmid, deputy general secretary of the Community Steel Union, adding that “it’s a big test of Labour’s work. industrial policy”.

Once all the blast furnaces close, Britain will be “just a recycler of steel”, McDiarmid added. “We won’t be able to make some of the high-grade automotive steels and some construction areas without virgin steel.”

Britain’s steel industry has been in decline for decades, with output last year falling to its lowest level since the Great Depression of the 1930s.

Part of the reason for the recent decline, industry trade body UK Steel said, was weak demand as well as higher imports – imports as a proportion of demand rose to 68% this year from 60% last year.

Tata and British Steel have lost money for their owners, with executives at both companies warning that their operations are losing more than £1m a day.

Colin Richardson, head of steel price reporting agency Argus Media, said: “The sad reality remains, companies cannot produce steel profitably by blast furnace route in the UK. The costs are too high, the plants are too old and very inefficient.”

Energy costs remain a challenge. Gareth Stace, managing director of UK Steel, welcomed the deal with Tata but pointed out that steelmakers still pay 50% more for their electricity than competitors in France and Germany, mainly because of higher wholesale costs in UK and partly due to higher network charges. .

“If this is not addressed, we will continue to lose market share,” Stace said.

Although Tata’s commitment to build an electric arc furnace will keep steelmaking in Wales, there is disagreement in the industry over how big the concern is that the UK could lose its ability to produce virgin steel or steel from raw materials, if British Steel follows. costume.

Some, including UK Steel, argue that the focus on primary steel production is overblown and that by switching to electric arc furnace production, the UK will reduce its reliance on imports by using more domestic waste.

Much will depend on the quality and mix of materials that go into the electric arc furnaces.

Argus’ Richardson said one of the main issues for anyone building an electric arc furnace in the UK will be whether they have “access to enough high quality raw material to produce the highest quality steel for the most rigorous applications , such as automobiles”.

In Europe, many steelmakers are considering an additional step: investing in “direct reduced iron” technology to be used in combination with electric arc furnaces. A DRI plant normally uses natural gas instead of coking coal to reduce iron ore. The resulting product, called sponge iron, can then be fed into an electric arc furnace.

Ultimately, the ambition is to replace the natural gas used in DRI facilities with “green” hydrogen produced from renewable electricity. But much will depend on the availability of green hydrogen, which is not guaranteed.

The UK government said on Wednesday it would “review the viability of primary steel production technologies, including DRI”.

Industry sources said one option could be to build a DRI facility on Teesside to supply electric arc furnaces to both Port Talbot and Scunthorpe.

The government has promised to publish a steel strategy next spring. Community’s McDiarmid said the industry needed a “plan we can buy into”.

“All this pain and all these job losses – we have to be convinced that there are sunny spots.”