Jobs and kebabs on the line in UK steel’s civil war over tariffs

Jonathan Reynolds’s decision this summer to protect the British steel industry from cheaper Vietnamese and South Korean imports seemed to be universally welcomed.

“This government is unapologetic in our support for the UK steel sector,” said Reynolds, then the business secretary, as he unveiled stringent rules on import quotas and tariffs. “It underpins Britain’s industrial strength, our national security,and our status as a global power.”

“This is a tremendous outcome,” responded Gareth Stace, the director-general of UK Steel, the industry trade body. “The measures will … prevent countries that flood international markets with unsustainably cheap steel from swamping the UK and driving our steel manufacturers out of business.”

Behind the scenes, however, all was not well.

Letters, emails and board minutes seen by The Sunday Times shine a new light on an industry racked by infighting and allegations of companies acting in self-interest. As an era of global protectionism arrives, civil war is breaking out in the UK steel sector.

On one side are the primary steelmakers. These are the likes of Tata Steel, British Steel, Celsa and Speciality Steel that collectively employ 10,000 people and produce semi-finished steel in the form of ingots, billets, blooms or slabs. They say it is imperative that UK steelmaking is protected from a flood of cheap, state-subsidised imports from the Far East.

On the other side are the “downstream” steel firms. These are the companies that turn semi-finished products into anything from metal washers to stainless steel counters and support more than 300,000 UK jobs. They claim that Reynolds’s protections, later rubber-stamped by his successor Peter Kyle, have put tens of thousands of jobs at risk.

Why? Because import duties, however well meaning, drive up the costs of the downstream firms — and in certain cases make doing business uneconomic.

Shrewd lobbying

Their central allegation is that the primary steelmakers, and the Indian conglomerate Tata in particular, are leading government policy by dint of a shrewd political lobbying effort to the detriment of the rest of the industry.

“British steelmakers are deliberately and consciously seeking to damage downstream businesses, even though some are their customers,” Stephen Morley, the head of the Confederation of British Metalforming (CBM), an association that represents 200 companies employing more than 70,000 people, told Chris McDonald, the trade minister, last month.

The CBM is one of a clutch of downstream trade bodies, the others being the British Constructional Steelwork Association, the British Independent Reinforcement Fabricators Association (Birfa), the National Association of Steel Stockholders, the National Steel Association, the British Stainless Steel Association, and the International Steel Trade Association (Ista), which have joined forces to press their case. This week they will hold talks with McDonald and Sir Chris Bryant, his fellow trade minister, to raise their concerns about the unintended consequences of protectionism.

Tata owns the Port Talbot steelworks in south Wales, which until last year was the UK’s biggest blast furnace works. Following years of wrangling over the loss-making site, Tata struck a contentious deal this year to close its blast furnaces and build cleaner electric arc furnaces. Switching the type of production will cost £1.25 billion and take years to complete. Ministers agreed to inject £500 million of state aid as part of the bargain.

‘Gun to the head’

While the electric arc furnace is being built, Tata can wield the threat of pulling out of the deal. Doing so would cost Tata financially but for Labour it would be a political catastrophe, having repeatedly stressed the importance of steelmaking to the economy.

In his letter to McDonald, Morley claims he was told that Reynolds’s decision in June was a result of Tata issuing such a threat.

“The final indignity was to be told the decision was not made on any rationale other than Tata Steel ‘holding a gun to the government’s head’. Such a tactic would be decried as totally unacceptable from another country, never mind a single commercial organisation,” Morley said.

Tata Steel declined to comment but trade body UK Steel says protectionist measures are necessary because of the existential threat from China.

Armed with seemingly bottomless subsidies from Beijing, Chinese steelmakers are flooding global markets with metal at rock-bottom prices to seize market share. Anti-dumping protections designed to prevent Chinese imports are being circumvented, with Beijing funnelling exports through the likes of Vietnam — so goes the argument.

In this light, the UK’s decision to increase protections is wholly logical.

Threat to construction

On the other hand, it risks profound consequences for the supply chain and could slam the brakes on the construction industry. Why? Because domestic production of steel is insufficient to meet the demand of the larger downstream sector, meaning there is no choice but to import.

Take steel-reinforcement bar and mesh, crucial to strengthen concrete used in housebuilding and infrastructure. “With UK domestic steel mill reinforcement production circa 600,000 tonnes and the UK steel reinforcement market at circa 1,100,000 tonnes annually, imports play a crucial role in keeping the supply of reinforcement flowing to the UK construction industry,” Richard Webster, the chair of Birfa, explained in a letter to Kyle on October 13.

Reynolds’s intervention this summer had “a significant impact on the … UK construction industry”, he said. This could deal a blow to Labour’s ambitions to boost construction and so drive growth in the economy.

Simone Draper, a director of Ista, said in a separate letter to Kyle in September: “[The] recent interventions by the previous secretary of state … caused disruption and unexpected costs across the supply chain.”

An even bigger concern is what happens next July when new protections are announced. The EU plans a 50 per cent tariff and is halving tariff-free quotas. Were the UK to mirror this approach, this would “quite literally strangle the metal manufacturing supply chain”, Morley wrote.

A middle ground

The hope is that a middle ground can be found. Kyle has hired engineering consultancy Hatch to map domestic production capabilities and demand for the next 25 years. UK Steel says it supports tariff-free quotas for steel products that the UK does not produce in sufficient quantities.

For Philip Jackson, managing director of North Yorkshire-based Bright Steels, his biggest concern is that a “one-dimensional approach on safeguarding will penalise us”. His company is exposed on both sides. Bright bar, the type of steel his firm makes, is undercut by cheap imports but his company also relies on imports following the closures of steel mills in the UK.

Peter Brennan, the director of trade and economic policy at UK Steel, said: “The UK has to realise that we are at the beginning of a total breakdown of global trade. Britain has been slow to recognise this because we naturally have a free-trade mindset.

“We have to implement broader import controls. That’s what the US has done. That’s what the EU is looking to do. We cannot be the last country holding out on this, otherwise we lose our steel industry.”

The stakes could hardly be higher, as stressed by Kirsty Davies-Chinnock, a 30-year industry veteran who runs a specialist stainless steel polishing business in the West Midlands.

“Everybody in the UK will come in contact with my products at least 30 times a day and will never know about it. From turning on a light switch, taking a vitamin, having a cup of coffee, all the way until you fall out of the nightclub at 3am and the nice man hands you the kebab over a polished stainless steel counter,” she said.

“You take all that away, and you can’t have that infrastructure, you can’t have your vitamins, you can’t have your cup of coffee. And you can’t have your kebab.”