Steel crisis: Buy local if it makes business sense


April 1, 2016

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Port Talbot Steelworks opened in 1906, but is now under threat.

On Wednesday, India’s Tata Steel announced it is looking to sell its UK arm, where it has lost £2bn over the last five years. This puts the future of the UK’s largest steelworks, Port Talbot in Wales, at risk along with the futures of 4,000 workers. It also raises the prospect that the UK government could invest in the works itself.

Not that this is a big surprise. In the last year, Tata has announced close to 3,000 job losses in its UK arm; and its revelation follows the decision by Thailand’s Sahaviriya Steel Industries in October to shut its steelworks in Redcar. Others are suffering too.

The main reason for UK steel’s problems is China, where the slowing economy has hit growth and forced Chinese steelmakers to sell overseas at lower prices than European rivals can manage. Wind is among the industries benefiting from this trend.

And on a pure financial basis it makes sense for developers in the UK to buy Chinese steel. The wind industry is under huge pressure to cut the cost of energy. If firms can source the steel they need from a Chinese firm, it makes sense to buy it. Why pay more?

But there is also an argument that wind farm owners have a wider duty to the community in which they operate. This week, for example, Swedish utility Vattenfall started installing turbines at its 76-unit 228MW Pen y Cymoedd project, but the firm and its turbine supplier Siemens came in for some criticism in January for shunning Port Talbot. Or, as The Daily Mirror put it: ‘Final betrayal as Chinese steel is used to build wind farm near Port Talbot.’

In its response, Siemens confirmed that it was “more than likely” that it was using Chinese steel in the project’s turbine towers. The company did have its hand forced, though, as its first tower maker Mabey Bridge shut down its renewables division in September.

Now, we are torn. We want wind companies to be able to source the products they need at the best price, but we also recognise that there are local sensitivities. If a developer wants to be a long-term investor in an area then it can make sense to pay a small premium for local products, to deepen its relationship with a community, but it should be that firm’s choice. It should not be guilt-tripped.

Because here’s the big obvious point: wind is a business. Buying local to foster local relationships can be a good strategy, but so can buying cheaply to push down the cost of power. Both make sense in the industry’s fight to prove it is both profitable and responsible; and it is up to the developer to decide which works in each case.

There is also a role for the UK government here. If it wanted to support the steel sector, it would encourage businesses to buy local — or force them. Port Talbot is not suffering due to a decision by Siemens on one wind farm. It is suffering because a range of sectors, from defence to transportation, are buying from China. Wind alone will not much a difference.

And this may be the direction the UK goes. If the government helps Port Talbot then a PR assault telling industry to buy British steel will surely follow. It could even pressurise sectors like offshore wind to buy local steel if they want to secure new subsidy support. If that happens then there will need to be some incentives attached so that one industry is not losing out to support another.

We sympathise with the plight of those working at Port Talbot but, in the absence of local content requirements, buying local will be the decision of investors. And that is how it should be.

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