British Steel warns power prices are ‘spiralling out of control’

Industrial metals updates

British Steel has warned power prices are “spiralling out of control” with unprecedented rises making it impossible to profitably produce at certain times of the day. 

The warning from the company, the UK’s second-biggest steel-producer and owner of the vast Scunthorpe plant in the north-east of England, comes amid increasing industry concerns over price spikes.

Steel making is highly energy intensive; electricity costs can represent up to 20 per cent of the costs of converting the basic raw materials into steel. UK Steel, the industry association, said last week that some producers were suspending their operations for limited periods at peak times.

British Steel, which is owned by Chinese industrial conglomerate Jingye, said power prices had soared in recent months. The company was now being quoted prices of “up to £2,500 per MWh” compared with £50 per MWh in April.

The company said it was maintaining production at “normal levels” for now, but called on the government and Ofgem, the energy regulator, to help create a level playing field with European competitors. 

Even in a global market where steel prices are strong, it is now uneconomical to make steel at certain times in the UK

“We were already at a major disadvantage to many of our European competitors, who pay much less for their power, and these exponential rises are widening the gulf — particularly as the increases have been sharper in the UK than in many other parts of Europe,” British Steel said.

Gareth Stace, director-general of UK Steel, said the continuing spot prices in excess of £1,000/MWh were “signs of an energy market that is malfunctioning”. 

“Wholesale prices in the UK have quadrupled, meaning that even in a global market where steel prices are strong, it is now uneconomical to make steel at certain times in the UK,” he added. 

Recent analysis by the association suggests that the disparity in electricity prices faced by German and UK steel companies has doubled over the past eight months alone. According to the association, British producers face prices that are more than £35 per MWh higher than those faced by their German counterparts. 

Luis Sanz, chief executive of the British operations of Spanish steelmaker Celsa that employs 1,600 people in the UK, said that the spikes in electricity prices had made things “even worse” for the industry. 

“Recent spikes in electricity prices to numbers which are more than 50 times higher than normal are making the problem even worse and are at risk of forcing good businesses to stop production or face financial ruin by continuing to operate,” he said. 

The industry has repeatedly called for help on reducing electricity costs, including action to increase the level of renewable levy exemptions.

Other heavy energy users have in recent days also raised concerns about rising energy costs. The Chemical Industries Association said the government needed to address the “very real exposure UK manufacturers face to remain competitive”.

Despite the warnings, one industry analyst stressed that the spikes were unlikely to be a permanent challenge for producers. 

“It is a problem but it is not a permanent issue,” he said, noting that companies were able to benefit from record high steel prices — as long as they were able to produce.

The Department for Business, Energy and Industrial Strategy, BEIS, said the UK’s “exposure to volatile global gas prices underscores the importance of our plan to build a strong, homegrown renewable energy sector to further reduce our reliance on fossil fuels”.

It added: “We are determined to secure a competitive future for the UK steel industry and in recent years have provided it with extensive support, including over £600m to help with the costs of energy and to protect jobs.”

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