Tempered steel

December 1, 2015

The devastating mothballing announcement SSI has dominated television screens and newspaper headlines over the past weeks, but what triggered this tragic sequence of events? NEPIC’s chief executive Dr Stan Higgins offers insight into the market conditions that have ultimately led to the fires going out at the Redcar steel plant

The global steel market has been hit by two major market hiccups in recent months. First, uncertainty over oil prices has slowed down global investment in the oil and gas industry, which normally takes 10 per cent of world steel output.

Steel workers in the US have been particularly badly hit and tens of thousands have lost their jobs in 2015.

Secondly, China’s faltering economic growth has also slowed investment in its construction industry, which means that many new and relatively efficient Chinese steel works have a much-reduced domestic market.

The resulting surplus has flooded world steel markets – slashing prices.

Until quite recently, China was building a new steel works almost every month to supply its booming economy. These two issues are having immense supply chain effects, but there are further complications.

Plummeting ore prices 

The slowdown in steel manufacture also has knock-on

problems for the suppliers of iron ore. In the manufacture of steel, fine-grained iron ore is processed into coarse-grained clumps for use in the blast furnace. A mixture of iron ore and coal is then heated in a blast furnace to produce molten iron, from which steel is made.

Ore prices have dropped by 30 per cent in 2015; worse, some users of the ore are tied into long-term contracts – compounding their losses.

Some commentators even suggest the ore producers are using this to drive less efficient, marginal producers of steel out of the market, hence reducing supply and subsequently encouraging a rise in steel prices.

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. The boom years of steel making due to Chinese economic growth are not expected to return and the long-term outlook for steel will be less than 2 per cent per year for the next few years. Finished steel demand in 2014 was 1537 million tonnes and the Organisation for Economic Co-operation & Development (OECD) steel committee suggests this will reach 1992 million tonnes only by 2030 – an optimistic projection in my view.

Domestic demand

Over the recent period, the UK exported 8 million tonnes of steel. SSI was a big part of this. On the other hand we imported 6.5 million tonnes of steel products; further evidence of fragmented and broken supply chains.

Clearly, demand for finished steel products remains high. Projects such as the Sabic Ethane conversion project, the Sirius Polyhalite Mine, MGT Power Station and other process industry investments are entering their construction phase, and steel structures and machinery will be at their heart.

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

The building of the high-speed railway, the upgrading of the UK’s rail network, and the recently announced nuclear power investments will all be based on steel.

Regional recovery

On Teesside, our communities have been tempered by industries that have come and gone. However, we have seen 83 substantial process industry investments take place over the last 10 years that allow for rejuvenation.

Such investments include the world’s biggest polyethylene plant and substantial biotechnology and renewable energy facilities with well over 5000 jobs replaced from older industries that have closed.

We, therefore, have the capacity to recover with greater support to attract foreign direct and indigenous investment.

As previously mentioned, the region has also just announced the addition of the Sirius polyhalite mine and production facilities that will require 2000 workers during construction and 1000 during operations, and the MGT power station that will employee hundreds of workers with engineering skills. The large societal waste-to-energy units being built by Air Products and Sita-Sembcorp are also soon to commence operations.

NEPIC has 730 participating companies across the North East chemical-processing industry supply chain. The process sector in the region (chemicals, specialty materials, polymers, pharmaceuticals, biotechnology, energy production from biomass and waste companies) accounts for 250 of our members. The total number is made up by the supply chain companies such as engineering, logistical, legal and technical support that supply them.

Integration and Government support

This brings me on to the crux of the problem. Without an integrated industrial strategy and policies to make it happen, we have energy intensive industries that find it hard to compete in global markets.

In other countries, including many in the EU, special arrangements are in place to ensure industrial energy requirements are treated favourably.

Furthermore, greater levels of energy and process integration are encouraged so that energy and utilities are utilised and shared more efficiently, and materials are manufactured and used symbiotically. The Government’s stance on being unable to support companies directly due to EU rules is correct.

However, an industry strategy that funds a better understating of infrastructure and integration requirements of industry, leading to greater efficiency in energy and material symbiosis, would identify pinch points and projects that are eligible for funding within the EU.

I believe that if we had a more connected industrial strategy for the UK, perhaps we could underpin our own steel making. This 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.

My thoughts are very much with the staff and families of the 1700 SSI workers that currently face uncertainty.

For 10 years, cluster organisation NEPIC has represented the businesses and interests of the chemical-processing industry in the North East. It has 730 participating member companies that are all working within the sector – one of which is Sahaviriya Steel Industries (SSI).