A Steel Sector Deal: Executive Summary. A vision for the future of the UK steel sector

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1 A Steel Sector Deal: Executive Summary A vision for the future of the UK steel sector Our future vision for the UK steel sector is for it to become a leader in steel productivity and innovation, working in partnership with our customers and the full value chain to develop advanced steel products and services for our customers to the benefit of both society and the wider economy. Steel products of the future must not only be made in as environmentally friendly manner as possible, but they themselves must be a part of the wider solution to our transition to a low carbon, circular, economy; our sector will be at the forefront of meeting this challenge. UK steel will invest in the long term, in our facilities, our R&D, and the training and skills of our people. In doing so, UK steel producers will become the hall-mark of quality and innovation, positioning the sector to capture more of growing markets both at home and overseas. September 2017

2 A vision for the future: 1. Our future vision for the UK steel sector is for it to become a leader in steel productivity and innovation, working in partnership with our customers and the full value chain to develop advanced steel products and services for our customers to the benefit of both society and the wider economy. Steel products of the future must not only be made in as environmentally friendly manner as possible, but they themselves must be a part of the wider solution to our transition to a low carbon, circular, economy; our sector will be at the forefront of meeting this challenge. UK steel will invest in the long term, in our facilities, our R&D, and the training and skills of our people. In doing so, UK steel producers will become the hall-mark of quality and innovation, positioning the sector to capture more of growing markets both at home and overseas. Key Sector Commitments Increase investment from 200 to 300 million, 1.5 billion over five years Increase online production capacity from 10 Mt to over 14 Mt Increase employment by 2,300 to 33,700 Providing 30 million/year of new matched R&D funding via a new Future Steel Challenge Fund Deliver end to end supply chain engagement through the architecture of the Future Steel Challenge Fund Key Requests of Government Eliminate the 50 million/year electricity price disparity Establish a Future Steel Challenge Fund with match-funding of 30 million/year Facilitate new investment through access to capital, grants and innovative tax credits Strengthen the steel procurement guidelines and their reporting mechanisms Remove plant and machinery from business rates valuations 2. Perhaps because steel is so ubiquitous and ingrained in modern society we can sometimes forget its enduring importance in so much of what we do; but we must remind ourselves that without steel you simply cannot have a modern economy. The government s future plans for transport infrastructure, house building, the low carbon energy transition, and the strengthening of manufacturing industries are all reliant on large volumes of steel. Ensuring that the UK steel producers are best placed to supply those opportunities, boosting UK GDP, providing jobs, and creating more resilient UK supply chains, must be a collective endeavour that government and the sector should deliver together as part of a modern enhanced industrial strategy. 3. It is vital we also recognise the social importance of the steel sector. The steel sector provides 31,400 jobs with plans to increase this by 2,300 in the years ahead; but these are not simply statistics that keep unemployment figures down, they are well paid, skilled jobs in regions of the country that are lacking in such opportunities. The mean steel salary in the UK, at 36,000, is 46% above that of Wales and Yorkshire & Humber where over many steel jobs are concentrated. 65% of the technical workforce is educated to degree level and the sector employs over 700 apprentices with plans to recruit 200 more each year in the future. Steel is important to the economy, but more importantly it is vital for people and for places as well. 4. The government s recent study, Future Capacities and Capabilities of the UK Steel Industry 1 demonstrates the size of the prize in capturing more of our domestic steel market, projecting that by 1 BEIS (2017) Future Capacities and Capabilities of the UK Steel Sector 1

3 2030 demand for finished steel products in the UK will have increased from 9.4 to 10.9 million tonnes. With the UK sector currently only supplying 4.4 million tonnes of this market, there exists a significant opportunity of 6.6 million tonnes, valued at 3.1 billion. We estimate that such an opportunity has the potential to boost sector GVA from 1.2 billion to over 3 billion. Most importantly, it would enable the sector to continue to provide those jobs and career prospects which are vital to industrial communities across the UK, particularly in areas that experience higher socio-economic deprivation than average such as Wales and the Yorkshire and Humber region. Enabling Actions: 5. The steel Capacity and Capabilities study identifies two key enabling solutions to unlocking this potential which we believe a sector deal is most suited to address; namely, Supply Chain Engagement and Research and Development. The conclusions note that greater engagement between producers and the steel supply chain is paramount to improving collaboration on product design & development and material specification. Additionally, the report highlights concerns that UK steel innovation may not be able to keep up with international competitors; greater investment and resources are required to address short (product development, productivity innovation), medium (near net shape, raw material processing) and long (step-change technologies, Industry 4.0 and clean, low carbon, steel making) term innovation challenges. The report concludes that consideration should be given to replicating the benefits in the steel sector that the Aerospace Technology Institute and the Advanced Propulsion Centre have provided their respective sectors. We believe a new Future Steel Challenge Fund is the key to delivering these enabling solutions. 6. Such a solution cannot however stand alone and it is clear that the steel sector needs to provide significant capital investment in the years ahead to modernise and enhance its capacity and capability. Unfortunately such investment continues to be hampered by a number of factors including uncompetitive energy prices, an obstructive business rates regime and difficulties accessing capital. Addressing these barriers through a sector deal will help to unlock this investment. Finally, the long term viability of the steel sector in the UK is contingent on a radical decarbonisation of our production facilities and the development of steels to help deliver the decarbonisation of wider society, this deal does not propose to entirely meet this challenge but looks to establish the building blocks for doing so. The heart of the deal: 7. In addressing the challenges of the future and setting ourselves on a transformative pathway the steel sector has identified an ambitious set of a core commitments which would form the basis of our element of any sector deal. These are: Increasing investment from 200 to 300 million a year, 1.5 billion over five years, Increasing employment by 2,300 to 33,700 Increasing on-line production capacity from 10 million tonnes to over 14 million tonnes Providing 30 million a year in new R&D match funding via the Future Steel Challenge Fund 8. To unlock this potential the sector has identified three core actions that should form the basis of the Government s commitment to a steel sector deal: Electricity Prices: Reducing the cost of electricity for steel companies is the most important intervention the government can make to help the sector achieve its vision and ambition. The 2

4 estimated price disparity cost to the sector in 2016 stood at some 51 million, the equivalent of 4.3% of the sector s total GVA and, as illustrated in chapter 3, had a significant impact on EBITDA margins. This is vital not only to ensure that companies can produce steel at a competitive rate in the here and now, but also so that adequate levels of profitability can be achieved to ensure long term viability. Crucial factors such as inward investment, funding for R&D and commercialisation, and transitioning to lower carbon production processes, are seriously undermined if we cannot tackle this issue. Any deal must deliver concrete and quantifiable action on electricity prices within an agreed upon time frame. Future Steel Challenge Fund: The steel sector is proposing the establishment of a new innovation fund to drive increased R&D in the development of steel products of the future and step change production processes. The governance of the fund will bring together the steel sector with its customers, along with government and academics, to discuss and address the real challenges of the future be they in light weighting of automotive steels, construction steels to deliver affordable and low carbon homes, or how to deliver truly low carbon steel making. The sector has already amassed a significant list of ambitious projects that such a fund could enable and this can be found in Annex 3. Importantly, the proposed Management Board, of the fund, made up of steel companies, government and supply chain partners, would act both as a means of setting competitions/challenges each year but also to facilitate much closer communication and collaboration across the steel value chain. The wider architecture of the fund, including an advisory board and working groups, would enable this further. The fund would be match funded with 30 million a year from both industry and government; past return on R&D investment figures from the sector indicate a benefit of between 6 and 16 for each 1 of public investment. Facilitation of Investment: The steel sector is self-evidently a capital intensive industry; business as usual operations and the up-keep of the sector s current assets can run to almost 200 million year. Attracting investment over and above this to expand, modernise and improve is extremely difficult in the current climate particularly for companies with overseas assets (Tata, Celsa, and Outokumpu) or for new companies just embarking on their new strategies (Liberty, British Steel). Government can help in attracting investment to the UK in a number of ways such as providing access to commercially competitive loans, provision of capital investment grant or innovative tax breaks/discounts linked to investment. The wider deal: 9. The proposal set out below constitutes the full series of enabling actions and endeavours that the sector has identified to help it achieve its vision and ambition. Collectively they constitute what steel producers have agreed are the most important elements of a delivery roadmap, but they should not be considered to be exhaustive of all issues and challenges that the sector must address in the years ahead. Moreover, whilst these actions together represent a comprehensive vision, they should not be considered as a single deal to be agreed upon collectively and enacted in parallel. Instead they should be viewed as a parts of progressive project with each action building on and complementing others, gradually moving the sector forward. 3

5 The Steel Sector will: Increase investment from 200 to 300 million a year, providing a 1.5 billion investment over the next five years Increase production capacity from 10 million tonnes to over 14 million tonnes Increase employment by 2,000 from 31,400 to 33,700, providing more well paid, skilled jobs particularly in socio-economically disadvantaged regions Work with government to establish a new Future Steel Challenge Fund, the architecture of which will bring together partners from across the steel value chain, automotive, construction, renewables, to discuss and address the challenges of the future Put 30 million of new R&D matched funding a year, over five years, into the Future Steel Challenge Fund Employ and train over 200 new apprentices every year, providing our businesses with the skills for the future and career prospects for young people in our communities Commit to the industry actions established in the 2050 Low Carbon Roadmap actions plan Help the government deliver greater electricity system flexibility, driving down costs for all consumers; with in excess of 250 MW of capacity available from electric arc furnaces alone we can almost double the current level of industry demand side response The Government should: Commit to eliminating the electricity price disparity between the UK and key EU competitors Join the steel sector to establish a Future Steel Challenge Fund, in order to de-risk future investment, encourage more early stage research and help bring industry partners together to tackle the technological challenges of the future Help facilitate greater investment in the steel sector by: utilising business rates as an offset to other tax receipts, providing access to finance at commercial rates, and the provision of investment grants Commit to key actions on public sector procurement including: including consideration of economic benefit to UK in procurement decisions, the provision of data on public sector procurement of UK steel, the extension of steel procurement guidelines to subsidised energy projects, and the establishment of a meaningful definition of UK steel for procurement purposes Remove new plant and machinery from the calculation of business rates in order to encourage inward investment in the steel sector Examine the implementation of a short time working/upskilling programme to ensure the workers and skills, and therefore competitiveness, can be maintained during periods of economic downturns Ensure the delivery of a robust Trade Remedies regime that meets the needs of the steel sector The importance of steel to supply chains: 10. The steel sector is an important foundation sector in the UK, sitting at the base of and supplying many other manufacturing and economic sectors, such as automotive, aerospace, construction and transportation. These end use sectors do not sit in isolation, and when considering their true or potential value to the economy, it is important to think holistically about their supply chains. For 4

6 example, the automotive industry directly contributes around 12bn GVA 2 to the UK economy each year, but it also purchases around 40 billion of goods and services from other UK companies, mostly manufacturers, thereby driving GVA production in many other sectors as well. Steel is a vitally important part of this story and the story of many other sectors. 11. UK steel consumed by the automotive sector is worth some 111 million a year to the UK economy (steel related GVA), steel purchases by the fabricated metals sector (much of which ends up in construction) boosts the UK economy by over 250 million, UK steel used to manufacture machinery here provides a further 120 million. The purchase of steel by UK consumers boosted the UK economy by an estimated 850 million in 2015, with significant potential for this to grow. Government efforts to boost the success of any one particular sector will of course also consider how best to deliver the maximum economic benefits to whole value chains and to the wider UK economy. Therefore delivering this deal is not just valuable in terms of boosting the success of the steel sector, but also in helping in the process of reshoring manufacturing and strengthening the resilience of our domestic supply chains. Conclusion: This sector proposal sets out in detail, the collective vision of the sector, not only of the steel making companies, but also the wider sector and the Trade Unions. This vision is borne out of the desire and necessity to build a truly sustainable sector, one that can better ride the cyclical waves that typify our global industry. To strengthen UK steel and the UK value chains that we are an integral part of. To seize an opportunity that is there to be taken, that will deliver jobs, wealth and a better economy for all. This document is the start of a process, a journey and a dialog that the UK steel sector wants to have with government. Because business as usual is not an option. 2 GVA measures throughout the document are based on ONS output measure of GVA: i.e. output at market prices minus intermediate consumption at purchaser prices. 5

7 UK Steel is the trade association for the UK steel industry. As the voice of the steel industry, we interface with government and parliament in both London and Brussels to influence policy so that it underpins, rather than undermines, the long term success of our sector. Membership of UK Steel is open to all UK-based companies and organisations involved in the production of steel and downstream processes. UK Steel Broadway House, Tothill Street, London SW1H 9NQ T: +44 (0) E: W: 6