As expected, Tata Steel announced that it would be mothballing the 2 remaining steel plate mills in Scotland with the sad loss of 270 jobs. Let’s not forget the even bigger blow to Scunthorpe which is set to lose 900 jobs. These job losses bring the total in the UK to around 4500, or 15%, this year and it looks likely that more will go too. This announcement brings the Scottish steel industry to an end.
The reasons cited by Tata Steel for the closures are the strength of the Pound, the cost of energy and the depressed cost of steel caused by China dumping their subsidised steel onto the global market. Let’s take a look at each one of these factors individually.
Strength of the Pound Sterling
The Pound has been appreciating in strength for some time now and it seems to be set to continue. But the pound is not appreciating against the USD, it is mainly appreciating against Asian currencies. The main reason for this increase in the strength of the Pound is:
“UK economic data continues to improve, particularly with respect to consumption, wage growth and core inflation, while foreign inflows remains supportive,” say Standard Chartered. Against this backdrop, it is believed that the BoE is likely to hike interest rates early next year, ahead of what markets currently expect.”
So the UK economy is growing. That’s a good thing, right?
Well it would be if the benefits of this growth were shared equally, but as the second chart shows that is not the case. For in the UK it is the rich who benefit the most from growth, the rest of us don’t get a look in.
Of course a strong Pound decreases the costs of imports, which makes us consume more, and gives our wonderful Chancellor of the Exchequer a chance to crow about his achievements. But the reality is that our current account deficit is the worst it’s ever been.
So that means that inflation is bound to rise. All that free money sloshing around the world due to quantitative easing has to find a home somewhere, and the scent of higher interest rates here in the UK is sucking it in. In short, the prevailing conditions are not going to change any time soon so we can expect more of our manufacturing base to suffer.
Cost of energy
As we already know, Scotland pays the highest prices for electricity in the UK. In fact the further you are away from London and the SE England, the more you will pay. This is because of the transmission rates which are set by the monopoly of National Grid. So it’s no surprise that the steel mills in the North of England and Scotland pay through the nose for electricity. Something which OFGEM has deemed acceptable for years.
Cheap steel from China
Weak demand and over production has left China with a glut of steel. Although the Chinese government has ordered various steel mills to close they continue to operate, often at a loss. But this keeps the jobs in China, for once a steel mill closes it is very difficult to restart it. Which means that the worlds biggest steel producer keeps pumping the stuff out. Ukraine and Russia are also dumping steel onto the market for the same reasons. So three of the top 4 steel producing nations are preserving their production capacity and destroying the rest of the world’s capacity. But that’s OK isn’t it? We can buy steel cheap and so keep costs down?
Steel is a commodity which is strategic by its very nature because it is required if you want to make things like tanks, guns and ships. If a country can lay its hands on the stuff easily it can therefore defend itself easily. But what if the UK has a bit of a tiff with the major steel producing nations, say a small spat over something like Syria? Then they could just say, “No steel for you.” Then where would we be?
Other countries within the EU manage to preserve their steel industries, but here in the UK they are to be sacrificed on the neoliberal altar of the market. Without any strategic vision on the part of our government.
As we would expect our politicians, elected and wannabe, are making hay from these job losses and steel plant closures:
Unusually, there has been no response from the Conservative and Unionist Party. I wonder why? But it just goes to show that the Unionist parties will use anything as a cosh to try to bash the SNP. Even when the fault lies squarely at the door of No.11 Downing Street.
But I thought that we were Better Together?
The jobs are in China and the powers are in Westminster.