Government support a game-changer for steelmaking

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Government intervention in the steel industry in the wake of Tata Steel’s withdrawal from the UK market is a potential game-changer for the industry.

The combination of government support, management and workforce involvement, and equity capital, is an opportunity to re-cast the current business model used in steel and develop leaner, more innovative initiatives.

The government has said it will work with Tata, unions and “other interested parties” to ensure a sustainable future for the Port Talbot plant and British steelmaking more widely after Tata said the value of its UK steel operations – which it bought for £6.2bn in 2007 – was now “almost zero”.

The company has in fact been staging a phased withdrawal from UK steelmaking in recent years so the announcement that it has now put up for sale all its remaining UK plants, including the giant Port Talbot plant in South Wales which supplies high quality steel to the British car industry and the Royal Mint, will not come as a surprise to some.

However Tata has made recent capital investments at Port Talbot, in ironmaking and in improving energy efficiency, so the plant has the potential to become profitable in the face of an upturn in prices. But this profitable core is not sufficient to compete with cheaper steel suppliers from China and elsewhere, which is leading to plunging global steel prices.

The central problem facing all world steel producers is the huge overhang of Chinese capacity which has not been funded on conventional commercial principles. This requires a co-ordinated international initiative to ensure steel firms worldwide can compete on the basis of competitive advantage.

 

Jonathan Aylen is a Senior Lecturer in Innovation, Management and Policy Research at the Manchester Institute of Innovation Research (MIoIR).

 

*Jonathan has been interviewed extensively by the local and national media in the wake of Tata’s announcement. He has been interviewed by The Times, BBC World Service Radio, Reuters,  Radio Sheffield, Radio Teeside, BBC Breakfast, 5 Live Radio, BBC News, BBC Look North and Good Evening Wales, as well as being interviewed live on the Radio 4 World at One.

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