Tata Steel succumbing to Chinese dumping in UK!

http://www.dailypioneer.com/columnists/oped/tata-steel-succumbing-to-chinese-dumping-in-uk.html
Saturday, 30 April 2016 | Makhan Saikia |
Tata Steel, Britain’s biggest steel manufacturer, is in the process of selling out its entire empire, which the Indian multinational corporation (MNC) had acquired in 2007. It is observed that the crisis in the British steel making is as old as 40 years. The simmering crisis in the industry is aptly described by Larry Elliot, who notes, “Globalisation, cheap Chinese imports, EU legislation, and a Government reluctant to help have all contributed to the plight of the industry.”
In last five years, starting from May 2011, Tata Steel has been struggling to cope with the pressure coming from both within and outside to sustain its one of the most prestigious businesses in Europe.

Let’s see how the crisis started and where it has reached now. In 2011, the company announced 1,500 job cuts at its sites in Scunthorpe, Lincolnshire, and in Teesside. By January and November of 2012, a total of 1,410 job losses were recorded at its plants in Thamesteel, Corby and in Port Talbot. In 2013, the company had to cut nearly 500 jobs in Cumbria, Teesside, and Scunthorpe. In the same year, Tatas recorded a loss of 1.2 billion pounds and this triggered speculation that it is looking for selling out some part or all of the UK business. But at the same time, the company, along with the Community Union of employees, requested the British Government to support the ailing industry so that further job cuts could be prevented. By July 2014, Tatas had gone ahead with cutting 400 jobs at its Port Talbot plant, sending a stern warning to the home Government that demand and prices of steel would be under pressure in the coming years. It also blamed the Government for high business rates across the country for which the company would be constantly making loss in future. In 2015, Tata Steel announced that it will mothball its mills in Scunthorpe and Scotland with 1,200 staff losing their jobs. By then, the company brought to light that the major plight of the industry is due to the oversupply of cheap Chinese steel into Europe and pressed for immediate action by the Government.
However, besides the Chinese cheap steel dumping, Tatas strongly feel the post-financial crisis construction slump and the cost of new climate change rules brought by both the European Union (EU) and the UK have severely affected the future of steel production in that country.
Sajid Javid, the Business Secretary of the UK Government, had consultations with the EU officials in Brussels for action on cheap Chinese imports and new procurement guidelines for Government departments to buy UK steel wherever possible.

The cheap Chinese steel dumping came to the political hot spot when President Xi Jinping was on a state visit to Britain on October 20, 2015. The Opposition parties, particularly the Labour Party, criticised the Cameron Government for not pressing Xi on the issue. A shocking and highly critical report brought by the Business, Innovation and Skills Committee of the UK Parliament stated that the Government reacted too slowly to the steel crisis which eventually led to the current plight of the industry. On March 24, 2016, the Liberty House owned by India-born metal trader Sanjeev Gupta has bought two Lanarkshire steel plants which were about to be mothballed, in a deal brokered by the Scottish Government. The worst moment descended on the Tata Empire in Britain on March 30, 2016 when it formally announced to sell its entire steel business in the country. The company employs around 15,000 people, out of which 4,000 of them are at its Port Talbot plant, the biggest steel work in Britain. Around 40,000 more employees who are working in the supply chain of the steel business are going to lose their jobs. On that very day, Business Minister Anna Soubry said that her Government is looking at all options to save the steel business across the country. In fact the decision to sell the Tata Steel Empire in the UK came only after the final talk between the Union leaders, Stephen Kinnock (Member of Parliament from Aberavon) and Tata management failed in Mumbai on March 29, 2016. Tata’s frustration with the Cameron Government is well understood by the international observers of the steel industry when Soubry suggested nationalisation of the Tata Steel but the PM refused to accept public ownership as the answer for reviving the business.

As the crisis deepens, the European Steel Association (ESA) accuses the UK Government of acting as a ringleader in blocking attempts to regulate cheap Chinese steel entering entire Europe. Finally after a request from the British Government, the Tata Steel says the company will allow time for a buyer to be found and has no set timeframe that could lead to a sudden closure of its plants across the nation. In the meantime, the Tata Steel is planning to purchase some parts or all of ThyssenKrupp’s European steel operations. The Rheinische Post quoted the German Government sources as saying that talks were already at an advanced stage to seal the deal between Tatas and ThyssenKrupp. It seems Tatas are in no way bowing down to the overproduction of cheap Chinese steel leading to the current plunge in the business and resolved to demonstrate its century-old quality, trust and business leadership once again in Germany.

Why is it becoming harder to sustain hardcore business sectors like steel in Europe these days? Experts say “the exorbitant cost” linking to energy generation, labour supply, and meeting varying regulatory standards across Europe have made mass production of steel purely unattractive in the continent. Hence, the European steel giants are finding it too difficult to counter massive production wave unleashed by China, Russia, Ukraine and Turkey. In fact, today high-end steel making badly demands huge capital intensive smelters which in turn help in producing the low-cost steel.

Interestingly, China produces world’s half the steel and it is fast mastering the skill of sophisticated steel making at its backyard. Thus China’s foray into the world of steel is creating a hubbub around the globe and many of the countries are quietly planning an import ban on the same. In the meantime, the Australian Government announced on April 23 that it will impose import duties on certain types of Chinese steel to protect domestic steelmakers from a flood of surplus product being exported by the world’s top steel producer. Responding to the Australian import duties, China’s Ministry of Commerce said trade protection measures could hardly be a plausible solution for the problem-ridden global steel industry at the moment. The Ministry stated the steel supply glut is due to sluggish global economic growth and tepid demand.

The World Steel Association (WSA) records that the Chinese steel production has grown more than 12-fold in the last 25 years whereas the EU’s fell by 12 per cent. The WSA sources say from the production of 66.4 million tonnes in 1990, China has taken a massive jump to 128.5 million tonnes in 2000, 638.7 million tonnes in 2010, and 822.7 million tonnes in 2014. Andreas Illmer argues, “The drive behind that stellar increase has been China’s double digit economic growth over the past decades. That led to ever more domestic demand for steel and the Government invested heavily in the industry during the boom years. But that demand has been severely hit by the current slowdown, leaving China with more steel than it needs.”

Though the demand for steel in China is much lower today than before yet the production is rate is very high, hence the Chinese steel is sold in the global market at a very nominal price. It is strongly felt that China will hardly do anything to halt the massive production of its cheap steel. Major output cuts would lead to huge job losses which may create social instability in China’s billion plus population. The Xinhua, China’s official news agency, has already warned against the imposition of protective import tariffs on the country’s steel export by some countries. It says, “Blaming other countries is always an easy, sure-fire way for politicians to whip up a storm over domestic economic woes, but finger pointing and protectionism are counter-productive.” However, the experts feel that setting up a higher tariff regime might save the domestic steel producers in the European Union. But keeping in mind the larger share of trade that China enjoys with almost all the EU nations, particularly Britain, embarking on a path of bringing stricter and higher tariff may start trade war between the two.

Wolfgang Eder, the CEO of Voestalpine a steel-based technology and capital goods conglomerate based in Austria, rightly underlines the road ahead for the future of European steel business against the backdrop of growing loads of cheap steel particularly coming from China. “Sticking to technology and quality leadership will be the only solution for European steel producers to secure profitability and future growth,” Eder says.

Though Sajid Javid is floating the idea of “co-investing” in troubled steel plants by the Government, the likeliest scenario, as the experts say, is the offering of a Government loan as part of a deal with other investors for buying of the steelworks. Indeed, the very idea of nationalisation of steel industry can hardly be acceptable to free-market politicians like Javid, who has always described himself as an heir to former PM Margaret Thatcher, the pioneer of neoliberal globalisation. Nevertheless, the Government says it is extremely hopeful of finding a solution to ease out the tensions of thousands of steelworkers as the pressure mounts from trade unions, like the Unite.

Today, centre of gravity of the steel crisis in Britain is the Port Talbot’s plant as it may lay off more than 4,000 workers. The steel workers out there are wary of the idea of nationalisation of their prized industry because when the state for the first time took over, it could hardly employ 18,000 people around the country. So they are not expecting much from the already troubled Cameron Government, which is currently grappled with the ‘Brexit’ dilemma. According to the International Steel Statistics Bureau, China has produced more steel in the last two years than Britain since 1900 which is becoming a potential threat to the major steel producing nations of the world. Therefore, woes encountered by Port Talbot steel workers are indicative of a global showdown in the industry and it might engulf the whole world!

(The writer is an independent political analyst based in Delhi)