Port Talbot closure would tear hole in Brit manufacturing supply chain

Port Talbot, Wales / Reuters

The closure of Tata Steel’s operations in Britain would leave a hole in manufacturers’ supply chains, dealing a blow to thousands of smaller firms across the country and creating a logistical headache for the car industry.
India’s Tata Steel, Britain’s biggest producer, put all of its operations up for sale, including the country’s largest steelworks at Port Talbot which is losing $1.4 million a day due to depressed steel prices and high costs.
As the government searches for a new buyer, some of Tata’s customers are already looking for new sources of steel which is used in everything from car roofs to Heinz baked bean cans, cladding on Ikea buildings and some of the country’s coins.
While bigger names have the luxury of a global supply chain to fall back on, smaller companies – which account for around 95 percent of British manufacturing firms – face a tougher task if Port Talbot in south Wales closes. Tata sells around half of its products into the domestic market, the firm said in 2014.
“It would be entirely undesirable from my point of view,” said Tony Mullins, executive chairman of QRL Radiators Group, a Tata Steel customer that makes heating radiators near the Welsh town of Newport, employing around 150 staff.

DRIVING FORCE
Looking abroad for steel would leave firms like QRL that use British steel exposed to swings in the currency exchange rate and higher transportation costs. It might also need to hold more stock if it is buying from the other side of the world, having an impact on working capital. “We have to produce quality products, and historically with Tata that has been possible for us,” Mullins said.
Britain, the birthplace of the modern steel industry, has been struggling to compete since its post-war heyday and has shed thousands of jobs in recent years.
Since 2001 imported supplies have met more than half of its domestic demand, according to the International Steel Statistics Bureau (ISSB), as local producers struggled with high energy costs, green taxes and fierce competition. Germany is the biggest foreign supplier of steel to British manufacturers and construction firms, followed by China, Spain, Belgium and the Netherlands, the ISSB said.
The government maintains that the main problem is the collapse in the price of steel. China has flooded European markets with relatively cheap steel as a result of its own falling demand. Britain imported 826,000 tonnes of Chinese steel in 2015, up from 361,000 two years earlier, according to industry data.
According to the ISSB, China has produced more steel in the last three years than Britain has since the industrial revolution. Those British steelmakers that remain have been kept going by local manufacturers, a resurgent car industry and foreign demand.
“Hot-rolled coil is produced (at Port Talbot) and that predominately goes into the automotive sector … that’s the bodywork,” Dominic King, head of policy and representation at industry group UK Steel, said.
Five carmakers built almost 99 percent of Britain’s 1.6 million cars last year and all source steel from Port Talbot, with some already looking for alternatives should the site shut.
The country’s biggest carmaker Jaguar Land Rover (JLR) , which made just under a third of national output last year, gets around 30 percent of its steel from the site while Nissan, which operates Britain’s biggest single car plant in northern England, buys 45 percent from there.
Showing the cost constraints within the industry, John Leech, who heads up the automotive team at KPMG and works with some of the country’s biggest carmakers, said JLR could not afford to give preferential treatment to a more expensive product even though it is owned by Tata Motors – part of the same family of companies as Tata Steel.
“To compete against BMW and Mercedes, Jaguar Land Rover needs to makes sure its cars are cost-competitive and that means using materials that are sourced cheaply & competitively.” JLR said: “Like all other independent businesses, we make our own purchasing decisions based on the right commercial reasons.” The firm said it continued to use Tata Steel and did not see any short term impact.
A spokesman at General Motors-owned Vauxhall, which uses Tata’s high-strength lightweight steel in its Astra hatchback model said it was “considering the scenario of UK steel plant closures on supply sources”.
“There are a number of sources of steel in Europe that are used by our plants in Spain, Germany and Poland,” the spokesman said, when asked whether the firm was looking elsewhere. Leech said timing could be key, with Tata Steel saying it wants to exit Britain as soon as possible.
“It will mean a lot of fast footwork behind the scenes but… the ability to get the same steel from other European or Chinese plants in (a three-month) time frame is a possibility,” he said.