The second largest Blast Furnace in Europe, and the associated coke ovens, have now been shut down – for the second time in less than 10 years. Could this be because they have the misfortune of being located in the UK rather than in a country that considers steel making to be an integral part of a modern manufacturing economy? It is true that a lot has changed since Bismarck’s suggestion that a nation is founded on ‘Iron and Blood”, but the study by PWC in 2014 suggested that the ‘Foundation Industries’ continue to play an important role in modern economies – beyond the simple value of their direct outputs. This article is not a comment on the specific situation at Teesside – that would require much more detailed analysis. Nevertheless, the Teesside closure follows the shutdown of two primary aluminium smelters in the UK in the last 10 years, so I believe that it is important to consider the position of metal production and other energy intensive industries in developed economies.
The UK’s economy was built on the development of mineral resources that supported the establishment of an economy based on manufacturing. Since then, as global sources of minerals have been developed, many of the metal production operations that had been established in the UK have shutdown, with production moving to overseas locations with better access to mineral resources and/or lower costs. However this has not been a global trend. Despite having virtually no mineral resources and high labour costs, Japan has maintained its metal manufacturing industries – they are regarded as important components of the advanced manufacturing supply chain.
Globalisation has resulted in many changes, and there are few nations that seek to be completely self-sufficient. Nature has dictated that some countries are better endowed with mineral resources than others, and the important factor now is that these should be developed in ways that are commensurate with sustainable development of the global economy. Each country must analyse how its specific strengths can be employed in the global system. Although countries such as France, Germany and Japan do not have world-class deposits of certain minerals, this has not prevented them from continuing to produce the relevant metals from imported raw materials. One European metal producer, Umicore in Belgium, has converted from the use of primary resources to the utilization of a range of secondary materials.
If a country is to strive to be a manufacturer of products that utilize a range of metals, there is some advantage in having some supplies from local producers (short supply chains, shared knowledge, collaborative innovations, etc.). If there are no local suppliers, the justification for the location of the manufacturer could be questioned. Why not manufacture closer to the source of the materials required (especially if those countries offer incentives to do so)?
The MMSD study on sustainable development of the minerals and metals industry– ‘Breaking New Ground’ – suggested that the efficient utilization of the five forms of capital should be considered: –
In a facility such as the steelworks at Teesside there has been a significant investment in the facilities, infrastructure and human resources required to operate a modern steelmaking facility. How do we account for the loss of these investments? When such a unit closes, it is not just the value of the output, and its multiplication effect in the local community and down-stream industries, but there is a danger that a capability is lost. It is not surprising that at this stage of the economic cycle and with the uncertainty over energy and environmental costs for steel production in the UK that there has been no commercial interest in taking over this facility.
Of course the loss of energy intensive industries may have a beneficial impact on the apparent direct GHG emissions from an individual country (and contribute to the UK meeting its Climate Change Commitments) but in a global context this is may be an illusion – there could be a negative impact dependent on the Life Cycle Impact Assessment of the impact of the imported materials/products that replace the lost production.
Some countries consider the strategic importance of their metal producing facilities. This allows the metal producers to work together with the government to ensure that the capabilities are in place. It could be argued that a country with no strategy is effectively penalizing metal production in their territory. Without a clear strategy, there is a real risk that the remaining metal production facilities could move offshore and that industries that rely on special alloy supply – aerospace, automotive, etc. could follow.
This is not intended to be a ‘Luddite’ appeal against progress, modernization or globalisation. Advanced technologies like ‘Additive Layer Manufacturing’ offer exciting prospects, but we must not forget that this is a technology that is dependent on the capability to produce high specification input materials for advanced applications like aerospace. It is important that each country makes the best use of all of its overall resources and capabilities. However it is important to recognize that there are a wide range of materials that are used to produce the machines and systems that deliver the services required in an advanced economy. It is suggested that the strategic impact of the loss of any material production capabilities should be analysed carefully before it is allowed to wither away. A careful analysis should consider ways of mitigation against any major adverse impacts identified.
The House of Commons website repeats information in Briefing Paper Number 07317 on ‘UK steel industry statistics and policy’. This presented a summary of the Manufacture of Iron and Steel in the UK in 2014: –
|Total||% of UK|
|Economic Output (£,million)||1,690||0.1|
The figures above are the direct outputs from steel production, but steel is used in many applications – enabling the construction of buildings and the manufacture of machinery and transport systems – all of which deliver added value. It is true that at present the steel required may be imported more cheaply than it was being produced at Teesside. If the same logic is followed then all metal production in the UK might be terminated. UK product manufacturers would then be solely reliant on imports. What would this mean for the structure of the economy?
It is not just the output that is lost when a metal producing facility is closed permanently – the capability to produce the materials required by the manufacturing industry is also lost, as is the capacity for manufacturer and material supplier to support collaborative innovation in local supply chains. In times of plenty this may not appear to be an issue, but during disruptions to the global supply chains this would be a concern.
The UK Government has acknowledged the importance of the steel sector – indeed the future supply of materials for the manufacturing sector is worthy of detailed analysis. If the aim is to re-balance the economy and develop the manufacturing sector, the capability to supply the materials required will need to be critical factor. National governments have a duty to create the conditions for the national economy to thrive and ensure the development of the appropriate infrastructure. In addition to the structure for the supply of utilities, energy, water, ICT, it is vital that a strategy for the supply of materials required for the manufacturing industry is in place. In the past this was considered to be critical for military reasons – it is still vital to ensure the supply of the materials in the form required by the advanced manufacturing industries (aerospace, automotive, machine production, etc.). There have been a lot of studies on the supply of Critical Materials, but it is important to recognise that the capability to convert them into the forms required is equally important.
The report produced for the German government is a good example of an effective strategic approach, and the Japanese government has recognised the importance of the materials supply chain for many years and has a national agency to coordinate action (JOGMEC).
History will castigate any government that through a lack of vision presides over a withering away of the capabilities to produce materials in the forms required to supply a sustainable national economy. This would surely be viewed as a dereliction of duty.
Sources: MMSD; 2002. “Breaking New Ground’, http://pubs.iied.org/pdfs/9084IIED.pdf
PWC; 2014 ‘Understanding the Economic Contribution of the Foundation Industries’, http://www.tatasteeleurope.com/static_files/StaticFiles/Functions/Media/Foundation_Industries_Report.pdf
House of Commons, 2015, ‘UK steel industry: statistics and policy,’ http://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-7317#fullreport
Federal Ministry of Economics & Technology. ‘The German Government’s raw mate-rials strategy’, http://www.bmwi.de/English/Redaktion/Pdf/raw-materials-strategy,property=pdf,bereich=bmwi2012,sprache=en,rwb=true.pdf
JOGMEC, History of JOGMEC, http://www.jogmec.go.jp/english/about/about003.htm
These are the personal views of Tony Hartwell, an extractive metallurgist who has worked across the resource supply chain in more than 35 countries over 40 years. He now works part-time with the Knowledge Transfer Network.