Will Hinkley Point C and HS2 Put Pressure on the UK’s Reinforcement Steel Sector?
There can be no denying that the UK’s steel industry has had something of a rollercoaster ride over the past three or four years. Back in 2015, SSI closed its Redcar plant and then almost immediately put its UK subsidiary into administration, with the loss of 1,700 jobs. As if that wasn’t bad enough, just six months later, Tata Steel dominated the headlines for weeks after it announced that it was to sell all of its UK plants, with the UK government even considering some form of intervention if a buyer was not found quickly. Whilst the mainstream media has perhaps quietened down with regards to the steel industry since those two shockwaves, problems affecting UK steel continue, with Brexit uncertainty and imports from emerging markets, especially China, having a serious impact on producers and suppliers across all types of steel production.
In what sounds like a sea of difficult issues, however, two major infrastructure projects look set to provide a real boost to the nation’s steel producers - Hinkley Point C and HS2. With some contracts already awarded, and a government commitment to encourage contractors to use British steel products in major infrastructure projects like these, the future looks a little brighter.
Between them, the Hinkley Point C nuclear plant and the HS2 rail line will involve some of the biggest construction and engineering works this country has seen in decades. HS2 should deliver trains that run faster than any other high-speed railway in Europe, and Hinkley Point C will be the UK’s first new nuclear plant since Sizewell B, where construction started back in 1988.
In terms of steel, the statistics are encouraging, with Hinkley Point C using 230,000 tonnes of reinforcing steel, and phase 1 of HS2 requiring 1.3 million tonnes of steel between 2020 and 2025. The later stages of HS2 will need a further 730,000 tonnes of steel, to be used beyond 2025. The steel estimates for HS2 do include much more than reinforcement products, and include steel for stations, bridges and the trains themselves, but the 220km of twin tracks, of which 29km is tunnels, will represent a significant chunk of the overall totals. In the words of Paul Nowak, the deputy general secretary of the TUC, “HS2 is a real opportunity for British steel to shine”.
The contract to supply the reinforcing steel for Hinkley Point C has already been awarded to Neath-based Express Reinforcements, using steel produced in Cardiff. It’s encouraging for the UK’s steel industry to see that a domestic firm has beaten overseas competitors to secure this £100 million deal, and the industry can only hope that HS2 follows suit, when it comes to procurement.
Back in 2016, Chris Grayling, the Transport Secretary, said that he had every confidence that British steel would be used on the HS2 project, although concrete guarantees on this have not been entirely forthcoming from the UK government. Whilst absolute commitments are not on the table, there are some positive noises coming from Whitehall, with all HS2 Main Works Contractors giving assurances that they would adhere to the government’s procurement guidance on steel. This guidance sets out a framework for what buyers should consider when sourcing steel products, including responsible sourcing, emissions, health and safety records, training and social measures to help disadvantaged workers. These considerations all favour national producers and suppliers over those from the newer economies.
Clearly, these key infrastructure projects are a real shot in the arm for the UK reinforcement steel sector, and for the construction industry as a whole. The short-term future looks a little more buoyant than perhaps it has for some time, but suppliers and producers remain cautious in their outlook, as there are other factors influencing the wider picture for steel, both in the UK and around the world.
Global over-supply has been a problem for some time, especially from China, with Tata’s CEO, Hans Fischer, citing this as a major factor in the firm’s UK woes back in 2016. Whilst the US has taken strong action on this in the form of Section 232 quotas and tariffs, the EU’s response has not been as fierce, and subsidised or ‘dumped’ steel from China and elsewhere continues to affect markets.
The Section 232 changes in the US may have been targeted primarily on China and other developing economies, but they have had an impact on UK exports of steel to the US. Much of those surplus exports from the UK are now heading to the EU, with the potential to destabilise markets there. With Brexit, in whatever form it ultimately takes, just around the corner, predictions for the UK’s steel industry are difficult, if not impossible. Whether it’s a deal or a no-deal Brexit, it’s likely that the UK will face changing export regulations and a degree of protectionism coming from the EU in the coming months and years.
One final issue facing UK producers is that of energy costs. It’s claimed that steel producers in this country face significantly higher electricity costs than their EU competitors. A recent report by UK Steel showed that British manufacturers face industrial electricity prices that are more than double those of manufacturers in France, and about 50% more than the prices enjoyed by German firms.
Analysts and media observers would undoubtedly love to be able to predict the fortunes of the steel industry for the coming years, but with so many variables in play, it’s a brave commentator who is willing to make any cast-iron forecasts. Whichever way Brexit goes, a decision is surely now imminent, and that will bring with it a degree of clarity - even if that clarity means some difficult times ahead. In the short-term, the Hinkley Point C and HS2 projects, along with upgrades to both Network Rail’s existing track and the UK motorway network, should see solid performance for the reinforcement steel sector for the coming five-year period and beyond. In the longer term, further government commitments and initiatives are needed to champion British steel production, as well as resilience and a long-term strategy from producers, suppliers and industry groups such as British Steel, the British Constructional Steel Association and the Confederation of British Metalforming. The opportunities are certainly there, and it’s now for the industry to make the very most of them.