Tata Steel put up its UK business for sale last week. The Indian multinational declared that enough was enough having reported losses of over Euro2.5bn in the territory over five years. Non-UK readers may well wonder what the fuss is about. UK crude steel production comprised 10.9Mt in 2015 or about 0.7% of global production according to World Steel Association data according to World Steel Association data. By contrast the country produced 9.3Mt of cement in 2014 or about 0.2% of world production according to CEMBUREAU data according to CEMBUREAU data.
The UK’s flailing steel industry is worth discussing here for two reasons. Firstly, any decline in the local iron and steel industry will have implications for the supplementary cementitious materials (SCM) market as slag levels vary. Secondly, the cement industry in Europe may have lessons for a fellow heavy industry facing capacity rationalisation.
UK ground granulated blastfurnace slag (GGBS) production levels are low compared to total world supply. However, the UK Competition Commission certainly took note of the GGBS market in 2014. It was worried by LafargeTarmac’s and Hanson’s prominence in both the local GGBS supply chain and local cement production. At that time it ordered the HeidelbergCement subsidiary Hanson to sell one of its slag grinding plants to increase competition in the supply chain for GGBS. A GGBS plant in Scunthorpe was eventually sold to Francis Flowers in July 2015.
The general point here is that a Tata sale of its UK operations could have ramifications for the UK GGBS sector as existing deals are renegotiated following the shakeup. It would be even worse for the local slag market if any of the plants closed. No doubt the Competition Commission would also want to have its say to maintain some sort of competition in an already concentrated market. The UK cement market has been the bright spot in the multinational cement producers’ European regions in 2015. However, construction growth is starting to slow again with hints that the looming European Referendum in June 2016 may be having a negative effect. Uncertainty over GGBS supplies is not helpful in this atmosphere.
A wider lesson for other national cement industries looking in is that if Chinese steel continues flood the world market it will also hit the cement industry. Tata’s woes have been squarely blamed on China dumping its steel on the world market. Various jurisdictions promote the use of SCM cements and concrete for their low-carbon and sustainability properties. If local or existing GGBS supplies are hit then the cement industries may be penalised while the lawmakers and competition bodies play catch-up.
The wider point about heavy industry reducing its production capacity is one that the European cement industry will be well used to. Spain, for example, has seen its cement production drop from 55Mt in 2007 to 15Mt in 2014 according to Oficemen data. Alongside this, demand for cement has dropped to levels not seen since the 1960s. The European response has been to shut plants, sell assets and to merge companies.
The big question following the 2008 recession is whether ‘this’ is the new normal for mature construction markets. Eight years later global interest rates are still lagging and China’s economy is slowing down. All of the European infrastructure was built long ago meaning that steel and cement will only be required to maintain it. Luckily it looks likely that demand for SCMs should stay buoyant as industries are encouraged to decarbonise. The problem though is where the slag comes from. Oversupply in the short term in areas like Europe might be great for cement producers but as the iron and steel industries readjust to market reality there might be a hangover in store.
