Tata struggles to sell British steel industry amid profitability crisis

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Tata Steel

Britain’s ever-dwindling manufacturing industry faces another crisis after Tata Steel announced it is seeking a buyer for its loss-making British division, including its flagship Port Talbot plant in South Wales. Around 40,000 steel making and supply chain jobs are at risk, with the future of the Indian conglomerate’s operations in Rotherham, Corby and Shotton also threatened with liquidation.

Finding a buyer has been as difficult as expected. Haemorrhaging a reported £1m a day, Britain’s biggest steel business is such an unattractive prospect that most major investment banks – which would usually salivate over the fees from a deal of such prominence and complexity – are not even interested in advising potential buyers.(1) While China’s prolific steel industry dominates the global market with cheap produce, high labour and energy costs, the need to import raw materials, and low demand have combined to doom the British division of Tata, which has also ruled out handing over a dowry payment to any buyer.

The Conservative government initially dismissed the idea of having the steel industry nationalised while a buyer is found. Under pressure from Labour and accusations that it simply does not care about workers threatened with unemployment, Business Secretary Sajid Javid has since claimed that the government is prepared to ‘co-invest’ with a buyer on commercial terms, a part-nationalisation of 25 per cent.

Shadow Chancellor John McDonnell has painted the crisis as one caused by China, which has slapped a 46% tariff on British steel, and callous Tory indifference. Without outlining the costs, he says he would ‘take action’ against Chinese dumping, nationalise British steel while searching for a buyer, and fast-track investment projects like high-speed rail, with the guarantee they would use British steel.

When Harold Wilson’s Labour government nationalised most of the industry under British Steel in 1967 and increased production despite falling demand, it didn’t work – one seventh of 350,000 steelmaking jobs were lost during the 1970s even before Margaret Thatcher came to power and began her ruthless war on industrial workers. In 1980, British Steel reported a loss of more than £1bn, then a record for a British company, and a year later it slashed staff from 271,000 to 167,000. The Labour Party and its trade union backers had in effect laid the groundwork justifying Tory cuts – the alternative had already been tried. By drastically reducing its labour costs British Steel eventually returned to profit in 1986. When it was privatised two years later, it only employed 52,000.(2)

Any proposition to nationalise does not change the fact that the world remains capitalist – debt must be serviced and repaid by returns on production, while investment through increased public debt would still run into the key problem of falling profitability. Making the British steel industry viable in the long-term will depend not on labour-intensive spending to save jobs, as McDonnell would have it, but on capital-intensive investment to make production cheaper and more efficient. That means slashing the workforce and massive expenditure on labour-saving technology. One interested party, commodity trading firm Liberty House, has said that Port Talbot’s blast furnaces – which employ 1,500 workers – would be replaced by electrically-powered arc furnaces that melt scrap steel instead of mixing iron ore and coke. Although Liberty House founder Sanjeev Gupta at this stage claims that jobs would not be axed, he did admit the move would cause a ‘hue and a cry’. He also dismissed McDonnell’s call for anti-dumping tariffs, welcoming the competition he says is needed to drive maximum efficiency.

Taking on the likes of China is quite the task. Forced to confront other national capitals by the circumstances of global economic crisis, and despite over-producing steel cheaply, China has sought to marginalise competition and protect itself from tariffs. For an idea of just how prolific its industry is: the British inventor Henry Bessemer patented a process for making steel in 1856. In the 160 years since, the UK has produced in total about 1.6 billion tonnes of steel – a figure China has produced in the past two years alone.

There are seven bidders for the whole company at the time of writing. One is Excalibur Steel, a hastily arranged management team comprising a number of UK-based Tata executives, who claim the knock-on effect of British steel collapsing would actually put ‘hundreds of thousands’ of jobs at risk. Excalibur wants the government to underwrite £300m in bank loans and a 10% contribution from workers. The remaining funding would come from commercial banks as a mixture of debt and equity. But Excalibur has stressed that its proposed buy-out would not take responsibility for a £15 billion retirement fund that has run up a £485m deficit. Neither does it want to shoulder the environmental liabilities associated with Tata’s sites – clean-up costs of the sprawling Port Talbot site alone have been estimated at up to £1bn. A few other bidders, including Liberty House and German steel-maker ThyssenKrupp, have expressed interest in buying the whole of Tata Steel UK.

It remains to be seen what any buyer could do to make British steel profitable in the long run, but they look to be caught between a rock and a hard place. Cutting 3,500 jobs since it took over the business in 2007 certainly didn’t turn things round for Tata, yet a capitalist with ambitions of alchemy must surely seek to drive down labour costs. At the same time, the capital investment needed to realise viability looks like a huge gamble that will only result in surplus production. Such are the times: the worsening structural crisis of capitalism, grounded in an over-accumulation of capital in the heartlands of imperialism, and limited opportunities for profitable investment, severely diminish the potential for economic growth. Capitalists are being forced to take long shots on unattractive ventures, but it is workers who will be made to pay the price. The real alternative to this spiralling mess of profligate overproduction and haemorrhaging financial losses is a planned socialist economy.

Barny Phillips