Steel production has been forced to halt temporarily this week due to the spiralling cost of energy.
UK Steel, the trade body for the sector, warned that production could decline further next year if the government does not extend and improve its support for businesses’ energy costs.
The current Energy Bill Relief Scheme is set to expire in March and an announcement is due in the coming weeks about what will follow.
UK Steel director general Gareth Stace said: “Electricity prices are at 30 times their historical average this week, forcing some steel companies to cease production at key times during the day. This is simply not sustainable for the steel sector. A long-term solution will be found in infrastructure investment and fundamental market reform, but in the interim we need a bridging solution that ensures UK steel producers can make steel at the same cost as their European competitors.”
Steel prices in the UK soared during 2022, beginning at about £350 per tonne and peaking at more than £1,200 in April, prompting warnings from the likes of HS2 about the project risks brought about by material price inflation. The cost of energy inputs during production is one of the main factors determining its sale price.
Stace noted that the German government’s support package for 2023 guarantees wholesale electricity prices at €130/MWh (£113), well below the UK’s current cap of £211/MWh. “The UK government should match this to ensure our industry’s ability to compete,” he said.
“Without the continuation of the [scheme], our estimates show electricity prices being double those of the German industry’s next year, leading to reduced production, shrinking market share and increased imports. Prolonged and frequent halts to production could become the norm, negatively impacting productivity and leading to a decline in steel production in the UK.”
He added that if the scheme is not extended, the UK sector will be “wholly exposed to the ravages of volatile energy markets with predictably grim consequences”.
A UK government spokesperson said it remained committed to delivering a more affordable, secure energy system through its Energy Security Bill, which will implement a long-term plan to grow low carbon and UK-based energy sources.
The spokesperson pointed out that a support package for energy-intensive industries was expanded in April, and its Energy Bill Relief Scheme meant firms were paying less than half the predicted wholesale cost of energy this winter.
They added: “We know this is a difficult time for factories and heavy industry, and we remain firmly on their side.”