Sunak’s minimalist plan has subcontracted Britain’s primary steel production to Macron
The PM’S package to help Tata switch to electric arc furnaces is a necessary but insufficient step
The last blast furnace built in the US for steel production opened in 1964. There were 125 cokebased furnaces operating across the country in the mid-1970s. Today there are 12. Over 70pc of America’s steel output now comes from recycled scrap melted in electric arc furnaces (EAF) at a much lower temperature and with one third of the CO2 emissions. The largest steel company in the US, Nucor, has never had any blast furnaces.
The electrification of steel began long before climate policies began to bite. It continued under Donald Trump’s presidency despite his pro-coal policies. The switch is driven by market forces and is happening in every mature economy that generates more scrap steel than it consumes.
There is no credible argument for spending UK taxpayer money to perpetuate the ageing smokestack plants of Tata Steel in Port Talbot. But that is not what the argument is about. The UK steel industry, the unions and Labour are not calling for such a rescue. They are proposing an industrial policy worthy of a serious industrial country. The indictment of the Government’s plan is that it does just half the job, leaving the UK with a stunted second-tier industrial base, the only G20 country lacking a sovereign capability in “weapons grade” primary steel.
Rishi Sunak’s £500m package to help Tata Steel and Jingye Group’s British Steel switch to electric arc furnaces is a necessary but insufficient step. The EAF plants in existence today cover much of day-to-day steel demand but few reach the high-strength tensile grade of 800MPA (megapascals) needed for cars, aerospace and advanced weaponry. It is hard to remove the “tramp elements” of tin, zinc and copper from scrap. Advanced high-strength steel requires a very high level of purity.
“When you look at a used car, there is copper everywhere and it is an absolute nightmare getting it out of the mix. The energy burden goes up and up,” said Alasdair Graham, head of industrial decarbonisation for the Energy Transitions Commission (ETC).
There is a solution for high-grade steel. You can produce it by switching to a direct iron reduction (DRI) process using gas, first natural gas and then green hydrogen as it becomes available at scale. You can feed this green iron into an EAF furnace to “sweeten” the mix.
The whole of Western Europe is switching to DRI plants for quality flat steel, backed by state aid to “derisk” the technology. France’s Emmanuel Macron last week committed €850m (£728m) to help Arcelormittal develop a project in Dunkirk that links both the EAF and DRI technologies. Arcelormittal is building its pioneer DRI plant in Spain powered by solar arrays. Tata Steel is developing its first DRI plant in the Netherlands and Salzgitter in Saxony. SSAB is already producing green steel in Sweden. Britain is holding back.
Three quarters of the UK’S steel is still produced in blast furnaces. This steel would have become progressively unsellable in the European market once the EU’S carbon border adjustment tax hit in January 2026. Half of the UK’S steel output is exported and 70pc of that goes to Europe. Clinging on to the status quo would have been suicidal.
In a report last April, the ETC mapped out how Britain could become a world leader in decarbonised steel by “pairing” electric arc furnaces with
DRI plants. This could have been commercially viable in the UK under the new British Industry Supercharger aimed at lowering power costs by £20 per MWH for energy intensive firms, along with the UK’S own carbon border tax in 2027, if buttressed by the sort of state aid offered in Europe.
The report also warned that the UK would have to move fast. That narrow window has probably slammed shut by now. Macron has beaten us to it.
Rishi Sunak has failed to go “all-in”. His administration has repeatedly shown the same reflex when it comes to infrastructure and industrial policy: a refusal to see the multiplier effect of investment projects and a tendency to see anything “green” as a burden rather than an economic gain.
In his favour, you could argue that the old distinction between primary steel and recycled scrap is becoming blurred. Nucor says it can already produce high-strength steel in EAF furnaces that meets the standard for car panels. Korea’s Hyundai Steel says it has even cracked the 1,000MPA threshold for ultra-high strength steel. New technology is on its way, using nano-precipitation.
Electric arc furnaces may ultimately cover all but a thin sliver of specialist steel. They are a way of eating up some of Britain’s eight million-ton surplus of scrap steel that is currently exported.
The UK can buy green iron – or hot briquetted iron – from the French or Dutch DRI plants on the open market. The EU could not weaponise this supply chain in the way it used electricity interconnectors during the Brexit wars, even if it wanted to, because green iron is easily transported and there will be many other global producers. It would be churlish not to acknowledge that the Sunak plan may offer the best bang for the buck in the end.
Britain is not alone in facing this crisis. Italy’s giant plant in Taranto is probably beyond saving. Europe’s steel lobby, Eurofer, says the industry is in its fourth recession in five years. A 5.3pc collapse in steel demand last year collided with a 36pc rise in Chinese steel exports. Xi Jinping is again dumping his excess capacity on us. Indonesia is undercutting even China with a suppressed internal nickel price married to the world’s cheapest coal.
Whatever happens, it will be impossible to save thousands of jobs at Port Talbot and Scunthorpe. Electric arc furnaces employ far fewer workers. DRI plants are highly digital.
It is galling to see the death of virgin steel in the country that launched the industrial revolution. Britain has missed another trick out of lack of ambition. It is a mistake: it is not a disaster.