To the public it may seem like the collapse of the British steel industry has suddenly become big news. In truth, it has been in progress for years. A story this long and deep can’t be covered adequately in sound bites and brief interviews on radio or television news. I’d like to share a glimpse from another angle.
Several years ago I was on contract through an agency to a British steel mill. A frequent problem with going through an agency is tick-box thinking that leaves the client and the consultant unable to make the best use of the consultant’s skills because the agency’s contract says the work to be done is something less. That almost happened. But the site’s PhD metallurgists, their R&D programmers and I managed to go after what the metallurgists really needed, although the contract made us go about it less efficiently than we would have preferred.
The site was losing money. Making steel is more expensive in the UK than in most (maybe all) of the rest of Europe. Raw materials, labour, taxes – all the usual suspects – are involved, but especially high on the list is the cost of energy. Today, with energy prices much lower than when I was on site, it costs about £35 per kwh in the UK versus about €25 in, say, Germany.
Management was cutting costs everywhere possible, but there is a limit to how much the bottom line can be improved by cutting costs. When faced with something as large as that gap in energy prices, strategies must include bringing in more revenue somehow.
That is where I came in. The metallurgists had an idea that could enable production of more sophisticated grades of steel with more consistent reliability and higher quality. Customers would be willing to pay a premium for such products. The site would earn higher revenue from the same raw materials, labour and energy. The PhDs said they needed the additional revenue not only to bring the site back into profit, but perhaps to defend themselves if China ever began to dump steel into the British market.
The metallurgists did not know how to build the central IT engine for their idea. I did that for them. Since I left, they have completed the system and hooked it into more and more of their production IT.
As we all know now, they were prescient about the threat Chinese steel could pose. China’s production costs are lower than Europe’s and much lower than the UK’s. The entry of large amounts of Chinese steel into Europe drove prices below what British steel mills could match.
The metallurgists were also correct about their strategy for defense. The Chinese sell ordinary grades of steel. That is fine for many purposes, but not where the steel is subject to high stress and failures are intolerable. Rails for train tracks are a good example. Cheap steel there would lead to an unacceptably high risk of track failure and train derailment. The site’s new system allowed them to focus more on products that cheap steel cannot compete against.
That kept the steel mill going for a few extra years, but it has not turned out to be enough to survive.
Discussion on the airwaves has focused heavily on the loss of jobs and impact on the national economy if the UK’s steelmaking industry disappears. While those are newsworthy effects, there is another factor to consider – the many uses of steel in the UK that are essential to infrastructure and/or national security and that require sophisticated high grade steel products. All of that will be at the mercy of other countries in the event that Britain loses its ability to make those products for itself.
Also, when steelmaking assets are sold off in the UK, the sales will include intellectual property that are part of Britain’s unique talent for making exceptionally high quality varieties of steel (not just the system I described – there are others). That knowledge and those tools will no longer be Britain’s.
The UK government has called an emergency meeting today, for which it is rushing certain key people back from travel as far away as Australia, to consider what to do about the crisis in the steel industry.
It would have been better to think about this five years ago when the steel industry began trying (very hard) to get the government to pay attention to it. More options were available then, and the government had not yet committed to nearly £500 billion of construction for the National Infrastructure Delivery Plan (which will of course need good steel).
There is always more to a big news story than first meets the eye, and there should always be more to a major strategic decision than just the numbers.
There was a time in the first half of the 20th century when Great Britain produced about a quarter of all the steel made in the world. It may not ever have such a large share of that market again, but leaving that market entirely is a step that should not be taken lightly.