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Steel yourself: The latest victim of the commodity rout

A worker polishes steel coils at a factory of Dongbei Special Steel Group in Dalian, China.
China Daily | Reuters
A worker polishes steel coils at a factory of Dongbei Special Steel Group in Dalian, China.

The U.K.'s steel industry, which has been in decline for decades, has had a turbulent few days, which some are blaming on cheap steel from China – just as President Xi Jinping kicks off a much-trailed visit to the U.K.

As the pace of Chinese economic growth has slowed, its demand for steel has subsided – leading to stockpiles of the metal which have been sold at rock-bottom prices elsewhere in the world, including in the U.K. and Europe.


Within the past month: the steel wing of Indian conglomerate Tata announced around 1,200 job cuts in the U.K.; a Redcar steel plant - which is one of the country's biggest - is being closed; and parts of steel processing firm Caparo have collapsed into administration, resulting in potentially up to 6,000 jobs being lost.

David Cameron, the U.K.'s prime minister, pledged to raise the issue with President Xi Tuesday.

"Will we raise it with the Chinese? Of course, we'll raise all these issues. That is what our relationship with China is all about," he told the U.K.'s parliament in response to a question from Jeremy Corbyn, leader of the opposition Labour Party.

"It is at such a high level that there is no subject off the table and all of these issues, including the steel industry, of course will be discussed."


It seems a sad decline for an industry which once employed around 200,000 people in the U.K., although this has shrunk to around 30,000 in the past four decades.

The steel sector is one of the biggest victims of the decline in global commodity prices. Industry body the World Steel Association forecasts that global steel demand will decrease by 1.7 percent to 1,513 million tonnes in 2015.

"It is clear that the steel industry has, for the time being, reached the end of a major growth cycle which was based on the rapid economic development of China. Combined with China's slowdown we also face low investment, financial market turbulence and geopolitical conflicts in many developing regions," Hans Jürgen Kerkhoff, chairman of its economics committee, said in a statement last week.


Nikolay Sosnovskiy, a steel analyst at UBS, explained in a research note that global demand is slowing, while oversupply, particularly in China, is depressing global prices.

"Prices for raw materials have stopped falling and earnings are deteriorating for steelmakers around the world," he said in the note.

This is much more than a U.K. story, or indeed a short-term commodity price movement story. The U.K. has become a comparatively more expensive place to produce steel, and faces competition from Brazil, Russia, Turkey and Ukraine, as well as China. And like other Western powers, its government has focused on higher-skilled, higher-paid jobs rather than the lower-paid steelworker end of the spectrum.

Still, understanding the dynamics of globalization is unlikely to console those whose jobs are at risk.

- By CNBC's Catherine Boyle