This post was first published by Business Green.
The UK steel industry has suffered from decades of decline, with production dropping by nearly two thirds since 1970; 2015 was a particularly difficult year, and one from which the industry has yet to recover. A glut of steel on the international market – nearly half of it coming from China – sent prices plummeting and resulted in nearly 7,000 job losses to the already beleaguered UK steel industry.
Then, in 2016, UK steel production dropped by nearly a third to just eight million tonnes, with China producing more than 100 times as much: 808 million tonnes. It was able to make so much in large part because of the low cost of labour. In the People’s Republic, labour adds up to just $10 per tonne of steel produced compared to $200 a tonne in the UK.
The unfavourable situation in the UK is not helped by our reliance on imports of raw material to produce most of our steel, namely 12.3 million tonnes of iron ore and 4.7 million tonnes of coking coal. As the value of the pound has dropped in recent years, the costs of these raw materials has gone up.
UK would compete better using electric arc furnaces and recycled steel
By now it is painfully clear that the UK will never be able to compete with the likes of China when it comes to producing low cost, high volume steel. And with global steel production accounting for a quarter of industrial carbon emissions, it’s also clear that we must take a different approach for the sake of the planet (and meeting our domestic carbon budgets) in any case.
A competitive steel industry fit for a green future would be possible if we made better use of the ten million tonnes, and rising, of low cost scrap steel the UK produces each year. Currently, 7.3 million tonnes of this is exported. Instead, it could be used domestically if we moved away from the traditional blast furnace mills that make primary steel and towards electric arc furnaces, which melt scrap to secondary steel and produce only about a quarter of carbon emissions compared to virgin steel.
The cost of steel produced by electric arc furnaces is similar overall to blast furnace steel (as both fluctuate with input material prices), but electric arc facilities have structurally lower capital costs. Steel production by this method is also done in batches, which means producers could benefit from low cost energy at times when renewable power is plentiful. Electric arc furnaces also offer operational flexibility, making them better suited to meeting demand for the smaller product volumes required by UK manufacturers. All this is especially significant when it comes to making small batches of complex and specialist steels that are worth more than standard steel.
In other words, low carbon, high value steel offers UK industry a real chance to be competitive.
Government help is needed to shift direction
These benefits, however, are unlikely to materialise out of thin air. Targeted government intervention is required to encourage the much needed, but very significant shift in direction for the industry. This is also consistent with the findings for other materials Green Alliance examined for the Circular Economy Task Force in our latest report, Completing the circle: creating effective UK markets for recovered resources.
The report argues that, to date, government policy has been over reliant on recycling targets alone to encourage better use of resources. But these do not encourage design for reuse or recycling, or guarantee that material will be collected in a condition where it’s fit for a second life. And they do absolutely nothing to ensure that resources – and the associated infrastructure and jobs – remain within the UK economy. As a result, far too often we send material abroad that should be put to better use here.
Complementing existing recycling targets with ‘pull measures’ to help stimulate market demand for recovered resources could create a much better resource management system. In the case of steel, standards for recycled and reused content, combined with public procurement encouraging the use of recovered steel could drive significant innovation and supply chain investment. These measures could more than triple the amount of material domestically recycled, while also cutting iron ore imports by 40 per cent and the carbon emissions arising from steel production by almost a third.
The government knows there is a challenge when it comes to steel. The Industrial Strategy all but concludes with a case study on steel innovation, noting: “We will aim to identify opportunities for steel markets and build on… innovation assets across the UK. We will continue to engage… to develop a commercially sustainable proposition in a competitive global market.”
So we have the opportunity to create high quality products from recycled steel and government ambition to innovate. All we need now is the roadmap to get us there.