Ships have been bringing coking coal into Port Talbot’s deep water harbour for 50 years to feed the giant steel plant that dominates the Welsh town. Earlier this month, however, the port closed. No more ships will call because the plant’s two blast furnaces, which used the coke to make steel, are closing.
Under a taxpayer-funded deal unveiled on Wednesday between the government and India’s Tata Group, which owns Britain’s largest steelmaker, the plant will replace the furnaces with a less-polluting electric arc furnace leading to the loss of about 2,500 jobs.
Both sides hailed the £1.25bn investment — which includes £500mn of taxpayer support — as the largest for the industry for decades. Port Talbot has long been the UK’s largest single carbon emitter, and the change in technology will be critical to the UK’s drive to meet net zero climate targets. But whether steelmaking has a viable future in the UK — and in what form — still hangs in the balance.
Richard Tice, a Reform UK MP, said the “truth is, and the country needs to know this, the loss of these blast furnaces is because of both main parties’ obsession with net zero”.
Ministers are locked in talks on a similar funding package with China’s Jingye, which owns British Steel, the country’s second-largest steelmaker. Jonathan Reynolds, business secretary, on Wednesday admitted talks with the company had become “very, very challenging”.
Jingye is expected to make an announcement about the closure of its blast furnaces at its flagship site at Scunthorpe in Lincolnshire as early as next week, according to political and industry figures.
Closure of the furnaces could prove to be a historic turning point for the UK, leaving the country without the ability to make steel from iron ore and coal for the first time since the Industrial Revolution. Electric arc furnaces do not require coal. Instead, they melt down scrap or recycled steel.
The agreement with Tata “shows that the government is prepared to commit big numbers but there is a hell of a lot more to do”, said Alasdair McDiarmid, assistant general secretary of the Community steel union, adding “it is a big test of Labour’s industrial policy”.
Once all the blast furnaces close, Britain will “just be a steel recycler”, McDiarmid added. “We will not be able to make some of the high-quality steels for automotive and some construction areas without virgin steel”.
Britain’s steel industry has been in decline for decades, with output last year falling to its lowest level since the Great Depression of the 1930s.
Part of the reason for the recent decline, said industry trade body UK Steel, has been weak demand as well as higher imports — imports as a proportion of demand have increased to 68 per cent this year, up from 60 per cent last year.
Tata and British Steel have been losing money for their owners, with executives at both companies warning their respective operations were losing more than £1mn a day.
Colin Richardson, head of steel price reporting agency Argus Media, said: “The sad reality remains, companies cannot produce steel profitably via the blast furnace route in the UK. The costs are too high, the plants are too old and very inefficient.”
Energy costs remain a challenge. Gareth Stace, director-general of UK Steel, welcomed the agreement with Tata but pointed out steelmakers are still paying 50 per cent more for their electricity than competitors in France and Germany, mainly because of higher UK wholesale costs and partly because of higher network charges.
“If that is not addressed we will continue to lose market share,” Stace said.
Although Tata’s commitment to build an electric arc furnace will preserve steelmaking in Wales, there is disagreement in the industry over how big a concern it is that the UK could lose its ability to make virgin steel, or steel from raw materials, if British Steel follows suit.
Some, including UK Steel, argue the focus on primary steelmaking is overdone and that by switching to electric arc furnace production the UK will be reducing its dependence on imports by using more domestic scrap.
Much will depend on the quality and mix of materials going into the electric arc furnaces.
Richardson at Argus said one of the main issues for anyone building an electric arc furnace in the UK will be whether they have “access to sufficient high-quality feedstock to produce the most high-quality steel for most rigorous applications such as automotive”.
In Europe, many steelmakers are considering an additional step: investing in “direct reduced iron” technology, to be used in combination with electric arc furnaces. A DRI plant normally uses natural gas instead of coking coal to reduce iron ore. The resulting product, called sponge iron, can then be fed into an electric arc furnace.
Ultimately, the ambition is to replace the natural gas used in DRI plants with ‘green’ hydrogen made from renewable electricity. But much will depend on the availability of green hydrogen — which is not guaranteed.
The UK government on Wednesday said it would “review the viability of technologies for the production of primary steel including DRI”.
Industry sources have said one option could be to build one DRI facility at Teesside that would supply electric arc furnaces at both Port Talbot and Scunthorpe.
The government has promised to publish a steel strategy next spring. Community’s McDiarmid said the industry needs a “plan that we can buy into”.
“All this pain and all these job losses — we need to be convinced that there are sunny uplands.”
