The manufacturing sector of the United Kingdom (“UK”) has experienced a dual blow after rolling stock producer Hitachi and Liberty Steel revealed job cuts which influence around 505 employees across the UK. The Labour and trade unions have criticized the government’s industrial strategy in the wake of these announcements.
Sanjeev Gupta, who is the owner of Liberty steel stated that it was aiming to cease activities in South Wales and South Yorkshire due to tough market circumstances and around 355 jobs are at risk, even though the company will move the impacted jobs elsewhere in the company.
Labour said that job reductions would push the government into action in order to safeguard the interests of the struggling steel sector of UK in the midst of continuing doubts about the prospects of Scunthorpe-based British Steel. The UK Steel industry had faced numerous challenges under the Tory government but received either no help or inconsequentially small help. Labour party already declared in the manifesto to safeguard the longer-term future of the steel sector by ensuring rationalizing industrial energy costs, augmentation of public procurement, investing in research & development and modernizing existing manufacturing sites.
The Japanese-owned Hitachi Rail declared the plans to right size working team at its rolling stock construction plant in Newton Aycliffe, in Country Durham, with around 250 jobs in danger.
Manufacturing Industry of UK including steel industry
The UK Manufacturing Industry contributes around £6.7 trillion to the international economy. In the UK, the manufacturing builds up 44 per cent of total UK exports, 70 per cent of business Research & Development, 11 per cent of GVA, and directly employs 2.6 million people.
Despite of a decline in the manufacturing industry since the 1970s, manufacturing has supported 25 per cent of UK GDP. According to Make UK (formerly EEF), the employees in the manufacturing sector of the UK are currently earning an average of £32,500 per person in a year.
The UK was the leader in the 19th century for steel fabrication before the international markets declined. In the year 2018, The 1.8 billion metric tons of crude steel was manufactured internationally. Out of this, China manufactured around 50 per cent while the European Union made up less than 10 per cent of the production.
Since the market crash of 2009, quantity of steel produced in the UK fell to 7.5 million tons in year of 2017, however, there was a decent increase in the years 2013 and 2014. Also, in 2017, the total pig iron manufactured came in at 6 million tonnes which was below the peak of 9.7 million tonnes produced in 2014.
With the reduction in production figures and introduction of energy-efficient means of production, the steel industry required around 2,650 gigawatt-hours of electrical energy compared to around 6,300 gigawatt-hours consumed in year 2000.
The fabrication of metals has witnessed comparable developments in the past few years. The number of wire rods produced came to around 700 thousand metric tons in the year 2017, which was almost half of that produced in the year 2004. The manufacturing statistics of hot-rolled steel plates also demonstrated a drop, with around 500 thousand tons in production recorded in year 2017.
Concerning imports, around 9.7 million tons of iron ore were imported into the UK in the year 2017, up from previous year’s 9.3 million tons. In year 2017, import of pig iron also grew, amounting to 50,000 tons.
In contrast, the exports of scrap metal reached nearly 9.40 million tons in the year 2017, which was the largest figure recorded in the past eight years. The leading importer of UK manufactured steel products was Turkey, which purchased around £760.0 million worth of these items in year of 2018.
Reason for the downfall of the UK Steel Industry
The risks of Brexit were responsible for inflicting immense damage to the steel industry in UK. Post-Brexit, UK steel could be less attractive to a producer in the European Union because it will be classified into a different category, as coming through imports. The chances of Brexit delivering better terms and conditions for trading of steel are bleak as the effects of the tariffs prescribed by WTO are negligible on steel traded between developed nations.
The steel consumption was reportedly down by 7.7 per cent on-year to year basis in the 2nd quarter of the year 2019 after the drop of 1.6 per cent in the first quarter of 2019. This is expected to stay lackluster in the year 2020 as per the European steel industry association, Eurofer. The factors accountable for this softness was continuing sluggishness in the European Union’s manufacturing sector were lower exports & investment as well as uncertainty over the effects of Brexit. As per the director-general of the European Steel Association, Axel Eggert, the current meltdown of the manufacturing sector in the European Union is not likely to be arrested anytime soon.
In May 2019, the UK’s second-biggest company in steel making profession i.e. British Steel entered insolvency proceedings after the UK government denied a £30 million loan. Gerald Reichmann, British Steel’s chief executive, had blamed a weak demand condition as well as high prices of raw materials along with the vulnerability of British Pound Sterling and uncertainty over the consequences of Brexit for this insolvency.
General secretary of the steelworker’s trade union, Royston Rickhuss had stated that “The news will increase more tension on staff and on those who were associated with British Steel, but it will also end the doubt under Greybull’s ownership and must be detained as a chance to find for an option for coming years.