It is a perfect winter’s day in February: amid the chill, the sun rides like a beacon in clear blue skies. Walking onto the industrial estate in Rotherham, where steel giant Tata has established the Proving Factory, dedicated to help design and produce limited runs of automotive and aerospace components for small engineering firms, it’s easy to feel optimistic for the future of manufacturing in one of the cradles of British industry. Auspicious weather. Are they auspicious times?
Steel is synonymous with nearby Sheffield but there is no denying that the sector has been corroded by icy headwinds over the years. Tata, the fiercely entrepreneurial and diverse Indian conglomerate that owns brands as distinct as Jaguar Land Rover and Tetley Tea in Britain, has its work cut out in keeping what is left of the steel industry in this country going.
There have been job cuts in recent times at Tata’s works, which include steelmaking operations in Sheffield, Lincolnshire and Wales, where the Port Talbot plant is Britain’s biggest steel producer, and one of the largest in Europe. It employs 4,000 people and produced 4.5 million tonnes in 2013, less than its five million tonne capacity. During that year, Tata Steel Europe also made a record loss of £1.2 billion.
Last summer, Tata cut 400 jobs at Port Talbot as it sought to trim costs. Those cuts followed 600 jobs lost at Tata sites in Wales in 2012. Steel imports from China are partly to blame, according to industry experts.
Tata snapped up Corus in a deal worth £6.7 billion in 2007. Corus had been formed from the merger more than 15 years ago of the previously nationalised British Steel, which had been privatised by Margaret Thatcher in 1988, and Koninklijke Hoogovens of the Netherlands. Andrew Woods, business development manager at Tata Steel Speciality Steels in Rotherham, and now sales manager at the Proving Factory, has thus been witness to enormous change over the years. He agrees that the environment for steel in Britain is “challenging”.
Mike Webb, market development manager of Tata Speciality Steels and another former British Steel stalwart involved in the Proving Factory, says Tata leaves its UK steel operation to its own devices. “There has been a big change from nationalisation to where we are today, to an industry that stands on its own two feet,” he says.
He adds that Tata Steel in Britain may be benefiting from not being publicly listed. “When you used to look at the Corus share price, and see it at 4p, inevitably you thought ‘that might be it for us’. However, this is a still a commercial operation. That focuses minds.”
The government-backed Tata Proving Factory is intended to bridge the so-called ‘valley of death’ that sees many innovative engineering projects fail to be realised commercially. As well as the site at Rotherham, which has a suite of state-of-the-art machine tools and is dedicated to producing relatively low-volume runs of metal components, a Proving Factory facility in Coventry for assembly operations was opened by business secretary Vince Cable last month.
It is hoped that its location in the heart of the West Midlands will see technology developers and innovators successfully bring their ideas to market at the automotive OEMs and tier-one suppliers in the region.
Companies already involved with the Tata facilities include micro gas turbine maker Bladon Jets and Magnomatics, which is developing lubricant-free magnetic transmissions and ultra-high torque electrical machines. The Proving Factory is talking to 100 other firms about their ideas, it claims. These include the Dearman Engine Co, which is developing liquid air-powered refrigeration trucks, and hydrogen storage fuel-cell firm Cella Energy. Proprietary gas compressor manufacturer Dynamic Boosting Systems is also involved.
Ten manufacturing cells within the factory could produce 20,000 units a year for each of 10 clients, it is thought. “The plan is to get to two million machined parts a year, which is a viable operation,” says mechanical engineer Richard Bruges, the leader of the Proving Factory and chief executive of Productiv, which exploits green automotive technologies.
Bruges believes the factory is a unique proposition in UK industry because it is catering for making such small runs of components for technology developers that would otherwise struggle to make the investments necessary for production. Once production reaches 100,000 units, he says, automotive OEMs and tier-one suppliers will make those investments in facilities themselves – but not before. Therefore innovators can be stranded when it comes to producing the prototype or low-volume runs necessary to demonstrate to customers that their ideas can be successfully manufactured.
Magnomatics says that being involved with the Proving Factory gives it a credibility with OEMs that would otherwise be missing. Bruges says the model on offer is useful for micro generation projects and aerospace as well as automotive. “Rail, marine and other transport sectors are looking interesting as well,” he says. “I am encouraged by micro generation, which Bladon Jets is exploiting, because there is a faster route to market. There isn’t the slow cadence of automotive. In all, there is a chance to accelerate demand for volume production.”
Shrinking technology: Bladon Jets, maker of micro gas turbines, is one of the firms using the Proving Factory's facilities
At the opening of the Coventry facility, Vince Cable once again indicated that he believed there was cross-party consensus that the government’s industrial strategy should be maintained by whoever triumphs at the next election – or whatever uneasy alliance is formed in its wake. He said that, although the last Labour government didn’t do much for manufacturing until late in the administration, Lord Mandelson had been right to set up the Automotive Council. “We have gone much further. The sensible thing now is to build on that, and not tear everything up by the roots.”
Cable said it was a straightforward decision to pump government cash into the Proving Factory. “This was clearly built around supply-chain development, and so commended itself immediately.” The hope is that tier-one automotive suppliers will be encouraged to invest more in Britain, said Cable. “To get foreign investors to come here we need really good infrastructure, including things like this.”
There is potential for the Proving Factory to export product overseas, and Bruges says that a small number of foreign firms are already interested.
It is not just small technology developers and engineering innovators who may ultimately benefit from the Proving Factory. Tata’s engineering steels are already widely exported – such as half of the remelted steel product from the Stocksbridge works, used in aerospace by Airbus and Boeing, as well as in oil and gas and automotive, and the ‘made in Sheffield’ brand carries huge significance internationally. The hope is that steel from Tata’s British mills will become locked into high-volume automotive projects at home as tier ones and OEMs adopt the technologies on offer at the factory. They are already relying on steel produced by mills run by Tata in Yorkshire and in other parts of Britain.
Tata’s Andrew Woods says these developments have the potential to revive the industry’s prospects in time. “With the assembly facility in Coventry we are at the heart of the automotive industry,” he says. “We are producing the steel for that facility in Rotherham. From producing steel to machining, to final assembly, there is a complete supply chain. Between Yorkshire and the West Midlands, there’s a system that is unlike anything else in the world.”
It is a facility that subcontract shops can’t compete with, he claims. “They don’t offer the same sort of reverse engineering, or assistance with developing new product.”
Such developments depend on the “appetite of the steel producer to go far down the process. To us, that’s of great interest. Technology development could mean the development of new grades of steel.”
Woods adds: “We’re getting in at the ground floor. Technologies that we develop that are successful could have production runs of five to eight years.
“Once something goes to volume at a tier-one automotive supplier, we have lock-in, because our steel has been used all the way through the process.”
Package deal: The Proving Factory will be a complete supply chain, from making steel to machining and final assembly
Bridging the gap between innovation and commercial production is a big challenge. “There is a massive difference between the language the technology developers talk and what the OEMs are actually after,” he says. “Basically, they could be from different planets.” Having access to four Proving Factory machine tools worth a total of £2 million is a bonus for any cash-strapped technology company, meanwhile.
Not all the firms involved with the factory will succeed in developing their technologies commercially there. Woods acknowledges that there is a large element of risk in identifying those likely to go the furthest. He says: “If they fail, we have lost our investment. If they succeed, we get our money back. It is speculative stuff. We expect a third to be successful.”
The Proving Factory will try to develop a model in which some clients produce low volumes of components for a niche industry for long periods in order to manage “churn” within the business. “We need stability, because companies coming and going is difficult to manage,” Woods points out. “You don’t want to let success go.”
There is a small engineering team at the Proving Factory, with some recruits handpicked from other firms. There are 50 staff across Rotherham and Coventry. Bruges says the company is attractive as an employer because it is new and innovative. An apprenticeship programme is supplying Tata and the factory with youngsters keen to learn manufacturing skills. “At the moment we have 15 vacancies, which is keeping me awake at night,” he says. “Jaguar Land Rover is trying to recruit hundreds of engineers. We find people come here because they want to work in a small, dynamic, exciting team.”
Woods says: “We don’t have the baggage of a company that has been operating for 50 years. We understand the culture we want to create.” Creating it may be difficult if skills gaps in engineering are not effectively addressed. “They are a massive problem. They could restrict our growth over the short term, and dictate our expansion plans – however big the company becomes.”
It’s a challenging environment, and not just for steel. The business secretary argues, like manufacturers’ organisation the EEF, that a referendum on EU membership in the next parliament is the last thing engineering now needs. Cable says: “A referendum on the future of the EU is something we can do without. It imposes a new level of uncertainty. It is up to the next government to set people’s minds at rest. We have to reassure investors that we are going to stay within the EU.
“Even the Japanese, who are not normally outspoken, are saying they would have to reconsider their position.”
Steel empire has international reach
Tata Steel has three integrated, or blast furnace-based, steelmaking sites, including IJmuiden in the Netherlands, producing slab, hot- and cold-rolled coil and coated strip products. Port Talbot in South Wales produces slab, hot-rolled, cold-rolled and galvanised coil, while Scunthorpe makes bloom, billet and slab, medium sections, rail, wire rod, and plate.
Steel is also made at a scrap-fed mini-mill complex in Rotherham, South Yorkshire. Alloy and special steels are made at this site. Ultra-pure remelted steels are made at the nearby Stocksbridge works. Engineering steels are rolled at the Rotherham works. Narrow strip is produced at the Brinsworth works in Rotherham and coated narrow strip at Walsall in the West Midlands. Also in that region, at Wednesbury, the company makes bright bar.
Hot- and cold-rolled strip and galvanised coil are made at Llanwern in South Wales. Metallic and organic coated sheet is made at various works, including galvanised coil at Shotton in North Wales and Segal at Ivôz-Ramet near Liège in Belgium. Colour-coated coil is made at Louvroil in northern France, Shotton, and Adapazari, near Izmit in Turkey. Tinplate and other packaging steels are made at Trostre near Llanelli in South Wales, and at Duffel in Belgium.
Rail is produced at the Hayange works in north-east France. Steel plate, including quenched material, is rolled at the Dalzell and Clydebridge works near Motherwell in Scotland. The Teesside beam mill at Redcar in north-east England makes heavy sections. Special sections are made nearby at Skinningrove.
A wide variety of steel tubes is manufactured at Corby in the East Midlands, Hartlepool on Teesside, and at Maastricht, Oosterhout and Zwijndrecht in the Netherlands.
Tata electrical steels are produced by Cogent Power. Grain-oriented electrical sheet is produced at the Orb works in Newport, and non-grain oriented electrical sheet at Surahammar in Sweden. There is also a finishing plant in Ontario, Canada. Electroplated strip is made at Dusseldorf and Trier in Germany and in Ohio and Pennsylvania. Narrow strip is also produced at the Layde works in Durango, Spain.
UK steel industry struggles to stay competitive as imports rise
“We’re not in a happy space at the moment.” That is the frank assessment of the steel industry’s fortunes by Ian Rodgers, the outgoing director of UK Steel, who is due to retire at the end of this month. Steel demand went up in Britain last year by a relatively healthy amount, 12%, says the trade body, but UK production only increased by 2% in response. Imports of steel increased by double that amount.
Rodgers puts the blame on the strength of sterling and excess steel capacity in Europe and other parts of the world. Demand in China has fallen, so there is excess capacity there of 200 million tonnes. Demand in Europe, meanwhile, is flat.
“We are seeing a big increase of Chinese imports into the UK and into our other core markets in northern Europe,” says Rodgers. “It impacts on price levels. There is too much steel washing around in European markets because of the Chinese. It is a buyers’ market.”
Gareth Stace, head of climate and environment policy at EEF, led the organisation’s representation in securing the energy-intensive industries (EII) compensation package in the 2014 budget. That deal is regarded as critical to preserving the steel sector as well as in boosting manufacturing in general, says Stace, who will soon take over from Rodgers at the helm of UK Steel. “What hits us most is electricity prices.”
The package should ultimately alleviate some of the costs that steel producers and manufacturers incur as a result of the European Union emissions trading scheme, and the Carbon Price Floor and Renewables Obligation (RO), says Stace. It should also compensate for the costs of electricity market reform.
Compensation for the RO is not due to come into play until April 2016, provided that EU state aid approval conditions are met later this year, probably in the autumn. “Once all of the package is in place, it will be more like competing on a level playing field with our European rivals,” says Stace. “But it is not giving us extra money to invest. It simply unties our hands. The problem is that we haven’t got a big chunk of it – yet.”
Not taking such measures could mean £8/tonne being added to the cost of British-produced construction rebar, according to the EEF, opening up the domestic market to a flood of overseas imports that were formerly uncompetitive due to transport costs.
Rodgers says that UK Steel is “grateful” for the EII package but the risk of “capacity shutting remains heightened until we get that compensation through. It could affect all of steel in the UK as well as other sectors.”
There are other issues that need to be addressed as well as energy costs. Like many areas of manufacturing, steel has an ageing workforce. Business rates are too high here for industry, says the EEF.
The organisation is working with the government on a policy for industrial ferrous and non-ferrous metals that it hopes will ultimately become part of industrial strategy, no matter who takes power in May.
The British steel industry is more innovative than that in emerging nations and must play to its strengths, says UK Steel. “In terms of Tata’s engineering steels, that innovation happens here – it doesn’t happen in China,” says Rodgers.
“There is a future for steel in the UK. As long as there is manufacturing here, there is a need for an indigenous industry. It is up to us to make sure we can produce that steel competitively.”