Steel – Global Perspective needed on Local Problems

Tees Business Digital Media Pack

Stan Higgins

With the Redcar blast furnace set to be mothballed once more, Dr Stan Higgins, chief executive of NEPIC, attempts to put some global perspectives on this local crisis:

• Although the steel made in Redcar is supplied solely to SSI in Thailand, steel is a global commodity and steel-making raw materials and the product itself are globally traded. Consequently, what is happening in several markets and industries has a very significant impact on steel producers.

• Steel is an important material in many industries and society in general. It is vital to those industries we now call “advanced manufacturing” like automobiles, oil and gas, aerospace, chemicals and many other processing industries.

• The global steel market has been hit by two major market hiccups – a fall in oil prices and economic crisis in China.

• Superficially, many might think that low oil prices should have a positive impact on industry through lower energy costs. Indeed, if they persist for a long time, this might in fact turn out to be the case. However, in the short term, the uncertainty has also added risk to industry investors. A direct and immediate impact of low oil prices is that it has considerably slowed down investment in the oil and gas industry around the world, including the development of unconventional gas in the USA. The oil and gas industry alone normally takes 10% of the global steel output. However, the industry has almost completely stopped investing. Steel workers in the USA have been particularly badly hit by this and tens of thousands have lost their jobs this year.

• Secondly, China was until quite recently responsible for building a new steelworks almost every month to supply its booming economy. However, its economic growth has faltered and investment into its construction industry has slowed. This means that many new and relatively efficient Chinese steelworks have a much reduced home market, hence they are flooding the world markets with their steel, so reducing global prices.

• The above two market issues are having immense supply chain effects, but there are further complications. The slowdown in steel manufacture is causing problems for the suppliers of iron ore as well. Ore prices have dropped dramatically by 30% in 2015. Some users of the ore are tied into long-term contracts that they cannot get out of, so compounding their losses.

• Some commentators are even suggesting that the ore producers are using this to drive less efficient, marginal producers of steel users out of the market, hence reducing supply with the aim of encouraging steel prices to rise. Until now, lower ore prices have only encouraged Chinese steel producers to produce in excess.

• Experts believe that over-capacity in the global steel market will linger on and demand will only pick up very slowly. The boom years of steelmaking due to Chinese economic growth is not expected to return and the long-term outlook for steel will be less than 2% growth per annum for the next few years. Finished Steel demand in 2014 was 1537 millions of tonnes (MT) and OCED steel committee suggest that this will reach about 1992 MT only by 2030. I suspect that this growth projection is very optimistic.

• Locally, however, demand for finished steel products will remain high. Huge projects like the SABIC Ethane conversion project, the Sirius Polyhalite Mine, the MGT Power Station and other process industry investments are entering their construction phase. Steel structures and machinery will be at the heart of these investments.

• Furthermore, steel will be the enabling material if we are to build an Industrial carbon capture and storage facility or if we begin to utilise unconventional gas or the Durham coal field through underground coal gasification.

• The building of the high speed railway, the general upgrading of the UK railway industry and indeed the recently announced nuclear power investments will also all be based on steel products.

• It therefore seems to me that if we had a more connected industrial strategy for the UK, we could begin put some of these ideas projects together and underpin our own steelmaking. Our country needs a more integrated approach to industry so that we don’t give all this value away by importing steel and other fundamentally important products into the UK.

NEPIC – the North East Process Industry Cluster – represents organisations within the chemical-using industries of the region.

 

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