Should the government save Port Talbot steelworks?

Its Indian owners have put the entire Tata Steel UK business up for sale, prompting calls for state help and even re-nationalisation.

by Andrew Saunders
Last Updated: 06 Apr 2016

The fact that the board of Tata Steel has decided to put the whole of its UK operations up for sale looks like pretty bad news for UK manufacturing. Steel is after all one of the most fundamental of raw materials, used by everything from car makers to the heavy construction industry.

Business minister Anna Soubry (her boss Sajid Javid is in Australia...) says the government is ready for a substantial intervention, whilst neatly avoiding saying exactly what that might be. Meanwhile unions are calling for renationalisation, a throwback to the 1970s which will surely never happen.

But some kind of short-term state support might be possible - such as acting as loan guarantors to private investors - so should the government intervene to prop up at least part of Tata Steel? Probably the giant Port Talbot steel works in South Wales, which as well as producing up to five million tonnes of steel slab annually, employs 4,000 directly (as many as 16,000 indirectly according to some estimates) and pays out no less than £200m a year in salaries. Here’s the MT take on the pro's and con's:

Yes, they should

The steel price is recovering. After collapsing over the past 18 months (like most commodities – oil, copper, etc) the price for steel in the UK has risen slightly recently. So a brief strategic intervention now would see the industry safely back on its feet again in a year or so. Money well spent.

Security of supply Foreign firms operating in the UK - Nissan and BMW to name but two – like to have the option of sourcing domestically. Not to mention the MOD when it comes to building nuclear submarines and warships. Having to buy all our steel from the Chinese could pose big problems in future.

Local politics The loss of all those jobs and all that money would devastate the South Wales economy. Political dynamite with the wobbles over austerity and the EU Referendum coming up.

It’s now or never if ever there was a strategic asset, then surely Port Talbot steelworks is one. If the French government can intervene to stop yoghurt companies falling into the wrong hands, then Westminster can help save the British steel industry.

No they should not

Those days are gone The 21st Century UK is a high-cost, high-value economy. Compare the price per tonne of steel with the price per tonne of a Rolls-Royce aero engine or an Aston Martin and see which kind of manufacturing business we should be in.

The steel price will stay down for years UK prices may have improved slightly but it’s not going to last. The massive dumping of cheap steel by Chinese makers (a result of oversupply and falling domestic demand there) means that rock bottom steel prices are here to stay. The UK can’t compete and should stop trying.

The market will provide Buyers have been found for other Tata steel assets, why wouldn’t they also want Port Talbot, one of the biggest steel plants in Europe? The likes of Greybull Capital and Sanjiv Gupta’s Liberty will bite - if the price is right.

Government handouts set a bad precedent One for hardline followers of the Chicago School of  economic theory only. it’s a principle that UK governments have often seemed to espouse in the past, but Tata is likely to take a multi-billion pound write down on its UK steel investments. No government grant is going to plug a hole that size.

So there you have it - whatever happens, it’s turning out to be a bleak Easter in the British steel business.

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