Read more: The government did nothing to avert the Tata Steel crisis
What prospects are there for the Port Talbot steelworks now that the investment house Greybull has bought Tata Steel's Long Products division for £1? Greybull is going to invest £400m in the Scunthorpe steelworks in return for reductions in pay and pensions. They might be interested in turning around Port Talbot and the Strip Products group too.
Another potential saviour is Sanjeev Gupta, the Wales-based head of metals group Liberty House. But Gupta's vision for Port Talbot involves converting its blast furnace into electric furnaces that melt scrap steel, a radical plan. A management buyout is also possible—if a heavyweight financial backer can be found, as Port Talbot needs capital investment of up to £2bn. In a Financial Times interview in early April, Ratan Tata, the former chairman of the Tata Group, referred to its UK steelworks as “under-invested and over-manned.”
In January, Tata Steel Europe announced 1,000 job losses in strip products, 750 of them in Port Talbot, the UK's biggest steelworks. The optimistic reading of the news was that Tata HQ in Mumbai were still trying to make the plant profitable and willing to carry the £1m-a-day losses while doing so. The pessimistic reading was that the Tata parent group were desperate. The hundreds of millions of tonnes of surplus Chinese steel on world markets had spooked them, and they had calculated that it might be decades before UK steel strip could return to profit.
The Welsh government put £60m on the table to encourage Tata Steel to invest in the Port Talbot plant. But this deal was conditional on the UK government contributing at least £300m. And it did not—presumably, the Treasury failed to cough up. It simply does not like manufacturing, it seems.
Now, after Tata Steel's announcement in late March that it will sell off its entire British operation, the politics of steel have changed. Sajid Javid, the business secretary, has floated the idea of partly nationalising Port Talbot. With the EU referendum coming up in June, the UK government is suddenly willing to find the money.
Should a management buyout succeed or Greybull decide to invest, Port Talbot would remain the conventional, strip products type of steelworks. This would also be the case with the other, more unlikely buyers, German steel giant ThyssenKrupp or American investor Wilbur Ross. Port Talbot's Blast Furnace 4, which cost £185m, was rebuilt three years ago and is state of the art. It is simply that the rest of the plant is not—or not yet.
Sanjeev Gupta is the exception among potential bidders in his vision of electric arc steelmaking, using 100 per cent recycled scrap steel. But the amount of electricity required to make steel this way is far higher than that needed with blast furnaces. The price of electricity is a major factor in the uncompetitiveness of UK steelmaking. However, if Gupta can get big concessions on wholesale electricity, he has a viable strategy, one that US steel producer Nucor has successfully used.
Yet with current technology, the steel produced from 100 per cent scrap is too impure to make, say, car bodies. So could the Gupta plan benefit from a compromise? Keeping Blast Furnace 4 for top-quality strip steel but replacing the plant's other blast furnace with an electric arc furnace for the less demanding grades of steel? That could work. But it will depend on the price of electricity. It's a massive test for Sajid Javid and the Welsh government.
Now read: What the Tata Steel crisis tells us about Brexit
What prospects are there for the Port Talbot steelworks now that the investment house Greybull has bought Tata Steel's Long Products division for £1? Greybull is going to invest £400m in the Scunthorpe steelworks in return for reductions in pay and pensions. They might be interested in turning around Port Talbot and the Strip Products group too.
Another potential saviour is Sanjeev Gupta, the Wales-based head of metals group Liberty House. But Gupta's vision for Port Talbot involves converting its blast furnace into electric furnaces that melt scrap steel, a radical plan. A management buyout is also possible—if a heavyweight financial backer can be found, as Port Talbot needs capital investment of up to £2bn. In a Financial Times interview in early April, Ratan Tata, the former chairman of the Tata Group, referred to its UK steelworks as “under-invested and over-manned.”
In January, Tata Steel Europe announced 1,000 job losses in strip products, 750 of them in Port Talbot, the UK's biggest steelworks. The optimistic reading of the news was that Tata HQ in Mumbai were still trying to make the plant profitable and willing to carry the £1m-a-day losses while doing so. The pessimistic reading was that the Tata parent group were desperate. The hundreds of millions of tonnes of surplus Chinese steel on world markets had spooked them, and they had calculated that it might be decades before UK steel strip could return to profit.
The Welsh government put £60m on the table to encourage Tata Steel to invest in the Port Talbot plant. But this deal was conditional on the UK government contributing at least £300m. And it did not—presumably, the Treasury failed to cough up. It simply does not like manufacturing, it seems.
Now, after Tata Steel's announcement in late March that it will sell off its entire British operation, the politics of steel have changed. Sajid Javid, the business secretary, has floated the idea of partly nationalising Port Talbot. With the EU referendum coming up in June, the UK government is suddenly willing to find the money.
Should a management buyout succeed or Greybull decide to invest, Port Talbot would remain the conventional, strip products type of steelworks. This would also be the case with the other, more unlikely buyers, German steel giant ThyssenKrupp or American investor Wilbur Ross. Port Talbot's Blast Furnace 4, which cost £185m, was rebuilt three years ago and is state of the art. It is simply that the rest of the plant is not—or not yet.
Sanjeev Gupta is the exception among potential bidders in his vision of electric arc steelmaking, using 100 per cent recycled scrap steel. But the amount of electricity required to make steel this way is far higher than that needed with blast furnaces. The price of electricity is a major factor in the uncompetitiveness of UK steelmaking. However, if Gupta can get big concessions on wholesale electricity, he has a viable strategy, one that US steel producer Nucor has successfully used.
Yet with current technology, the steel produced from 100 per cent scrap is too impure to make, say, car bodies. So could the Gupta plan benefit from a compromise? Keeping Blast Furnace 4 for top-quality strip steel but replacing the plant's other blast furnace with an electric arc furnace for the less demanding grades of steel? That could work. But it will depend on the price of electricity. It's a massive test for Sajid Javid and the Welsh government.
Now read: What the Tata Steel crisis tells us about Brexit
