Just Say No to steel subsidies

We’ve mentioned this before. The correct amount of subsidy to Jingye and Tata over their steel plants and plans is nothing. Zero, zip, nada.

Now of course we would say that, wouldn’t we?

But this is not based on our general abhorrence of spraying taxpayers’ money up the wall. There’s a specific technical reason why. One that does not depend upon our or anyone else’s opinions about anything. It’s one of those simple facts.

The argument in favour of subsidy is that without it Britain will have no primary steel making capacity. Primary steel is when we use iron ore to get to iron and then steel. The old method, with coke and blast furnaces and the like, is not very green. There are greener alternatives possible, direct reduction say. Moving from BF-BOF to DRI could indeed be very expensive. OK. But the argument for government to be picking up part of that cost is that there’s a strategic interest in Britain having primary steel making capacity.

Now, we don’t think that’s a compelling interest. But note that that’s our opinion on this. As an opinion it’s obviously arguable, disagreeable with. That’s fine. We don’t think there should be subsidy largely on the grounds that we’re complete tightwads with other peoples’ money.

But, note that the only justification for the subsidy is that preservation of the primary steel making capacity. If that’s not preserved - either some updating of BF-BOF, or subsidy of the move to DRI or the like - then there is no argument for, justification of, subsidy. Because not having primary steel capacity would obviate the argument that we should subsidise so as to have primary steel making capacity.

At which point:

Both companies want subsidies to help them to pay for a switch from the traditional carbon-intensive method of steel making — firing iron ore with coking coal in blast furnaces — to something greener. British Steel wants to go for an electric-arc furnace, where scrap steel is melted using electricity. Tata is also tipped to go down that route…

This is the other way of making steel, EAF. Scrap steel is melted. More details here. EAF is not a perfect solution to the production of all sorts of steel. It’s useless for nuclear applications, as one example, because you never do use scrap in making something nuclear. There are other constraints too.

A move to EAF could indeed make sense. We’re not claiming detailed knowledge of the costs and benefits - we’re happy to leave that to the industry professionals. But we do absolutely insist that EAF is a method of producing secondary steel, not primary. Therefore there is no strategic justification - dependent as that is upon the preservation of primary steel making capacity - for a subsidy to EAF steel making.

The claim for subsidy is to preserve primary steel making. The proposal is to abandon primary steel making. Therefore no subsidy.

This really is simple.

As we say, we don’t think that the preservation of primary capacity is worth £1 billion and more of your and our money. But that’s an opinion. Claiming £1 billion to preserve primary while actually not preserving primary is, well, it’s one of those requests that should be met with a volley of the riper Anglo Saxonisms.

No Matey, you don’t get the cash to not do what we’re giving you the cash to do.

Just Say No to steel subsidies. You know it makes sense. Or, at least, you do now.