Another important hurdle for the industry is capability. One of, if not, the biggest trends affecting the use of steel in the automotive industry is lightweighting in response to emission targets. An increasing share of value-added grades like advanced high strength steel and ultra-high strength steel are being used in the production of newer vehicle models. The issue for UK steel, and it is a big one, is that it does not currently produce any of these value-added grades. The market could be fundamentally shifting from volume to value, which is not a development that suits UK steel in its current state.
The question of how to address this lack of capability or whether the UK should be looking to produce value-added grades at all, is a contentious one. Some believe that the government should be supporting suppliers by lowering fixed costs such as energy and business rates, while others believe it is the responsibility of the industry to make strategic investments. Either way, it is a certainty that significant capital investment will be needed if the UK wants to be competitive in this regard.
The lightweighting trend is being driven in large part by European emissions targets. This raises the question of whether the UK’s departure from the EU will affect the UK’s commitment to emission targets in their current form. The consensus among industry players is that it is unlikely that the UK will implement a vastly different emissions regime than its European neighbours.
Firstly, consumers are increasingly environmentally conscious and secondly, companies like JLR will continue to do a significant amount of their business outside the UK. The majority of manufacturers have committed themselves to emissions targets up until 2030, and many are actively aiming to come in well under them anyway. Changing course in such a big way is unlikely at this stage. The big Brexit-related issue is likely to be tariffs. A situation where OEMs have to pay tariffs to import parts and materials and then pay them again to export the finished vehicle would not only add huge additional costs, but jeopardise the entire just-in-time model itself.
What needs to be done?
There is no denying these are big challenges. Overcoming them, though, is not only possible but hugely beneficial to the UK steel industry and the automotive companies that make use of it. So, what needs to be done in order to best take advantage of this huge opportunity?
The industry has to evolve. It is impossible to expect UK steel to be able to do everything so choosing an area of focus to direct innovation towards is important. R&D should be a high priority and with world-class universities and government-backed institutes, creative forward thinking should be able to extend across the whole supply chain.
The role of capital investment cannot be understated either. Key investment areas are increasing capability (which in turn potentially make UK producers more attractive to automotive companies), product development, innovation and increasing linkages to the automotive supply chain.
The automotive companies we interviewed said that steel is currently lagging behind the aluminium industry in both these areas. Government can also do its bit through the use of legislation to reduce fixed costs such as business rates to help the industry stay competitive.
Substantial changes can be made in the supply chain too. Situated in the midst of sophisticated globally integrated supply chains, UK steel should be looking to streamline and get more involved. The protective, siloed approach that has prevailed so far needs to be replaced by one in which contact and customer service are prioritised. The lack of engagement throughout the supply chain was highlighted as a major block to innovation by the automotive companies we spoke to.
The next decade could see the UK steel industry laying the foundations for a period of large and sustained growth. For this to happen, the automotive industry is going to have to be right in the middle. Making itself an attractive, reliable and integrated partner to automotive is, in our opinion, an absolute must for UK steel in the coming years.
The Future Capacities and Capabilities of the UK Steel Industry study was commissioned by the Department for Business, Energy and Industrial Strategy and the UK Steel Council. This study was conducted by a Grant Thornton UK LLP-led consortium including Hatch Consulting and the Materials Processing Institute.