Why is the UK steel industry in crisis?

The British steel industry is in crisis. Tata Steel has become the third company to announce job losses in recent weeks. And it seems that more than one in six of the 30,000 remaining jobs in the steel industry could disappear now. A sector that was eroded by the global recession of 2008 and 2009 is struggling amid a weak global recovery.

The crisis in the British steel industry is global

The problem in the steel industry is a global one. South Korean giant Posco (the world’s fifth largest steel producer) reported its biggest quarterly loss in five years.

The current forecast of the World Steel Association (WSA) is that the demand for steel worldwide. And it will contract by 1.7% this year. This contraction is largely determined by a decrease in demand from China.

China has been responsible for more than 100% of the global increase in steel demand over the past seven years. By comparison, the use of steel in Europe during the same period of time decreased by approximately 30%.

Under the current conditions, China should have reduced production and jobs. But the state companies chose to export the excess steel on international markets at uncompetitive prices.

The president of the World Steel Economics Committee mentioned. „It is clear that the steel industry, for the moment, has reached the end of a major growth cycle. Which was based on China’s rapid economic development.”

This does not mean that the UK steel industry has to bear the brunt of a global restructuring.

It is worth noting that, while the UK has a lower corporate tax rate than much of Europe. Profit tax is paid only on profit. And a lower profit tax is not much help for a loss-making industry.

Also, state aid is used much more strictly in Great Britain than in, say, Germany or France.

If the Tata Steel workers had been in Stuttgart or Strasbourg, rather than Scunthorpe, they might have enjoyed more direct government support.

Article source: http://www.bbc.com/news/business-34595475