Last week the UK government effectively nationalised the blast furnaces at Scunthorpe on the north-east coast of England. These furnaces are the last sites in the UK that can manufacture iron from ore as a precursor to the production of virgin steel. The emergency legislation will help to keep open this important source of local employment and industrial activity.

Nevertheless, I argue that it was an expensive and unnecessary move. Instead of making new virgin steel, the UK should concentrate on recycling the large amounts of old scrap steel that are exported from this country for reprocessing around the world. The owners of Scunthorpe already have plans to switch to using steel using electricity and scrap. Of critical importance to any plan, the price of electricity used for electric arc furnaces needs to be roughly the same as in competitor countries, necessitating a substantial subsidy. Without it, UK steel-making cannot hope to be financially self-reliant. Other countries do this and without financial support, the UK cannot hope to be competitive.

Basic numbers

The most recent data from industry body UK Steel gives the following figures for the UK’s consumption and production of steel. These figures relate to 2023. In 1970, the peak year for the country’s steel production, the number was five times higher.

UK Production of steel - 5.6 million tonnes, of which 4.5 million tonnes came from blast furnaces

UK Demand for steel - 7.6 million tonnes

So about 2m tonnes of steel had to be imported in 2023. This number probably rose in 2024 after the closure of the blast furnaces at Port Talbot but the figures are not publicly available yet.

But at the same time as importing 2m tonnes of finished metal, the UK collected about 10.5 million tonnes of scrap steel, almost three million tonnes more than total steel demand in the country. Some scrap was used in the existing electric arc furnaces here but most was exported; about 8.5m tonnes of scrap was sent abroad for reprocessing elsewhere back into new steel. (Some of this new steel will have eventually come back to the UK). This makes the UK the world’s second largest exporter of scrap steel for recycling. Expressed in per capita terms, the country is the top source of used steel.

Put another way, the country’s exports of scrap, which can be easily recycled in electric arc furnaces, alone exceeded its total demand for the metal. There is no need for blast furnaces, such as the ones in Scunthorpe, for the UK to build self-sufficiency in steel production. This has been a consistent worry expressed over recent weeks with many expressing a view that the UK needed to retain the capability to make steel from iron ore in blast furnaces. But simply keeping used steel available for recycling in the UK would provide enough of the metal for the country’s needs.

It may be worth noting that many other countries restrict or block the export of steel scrap in order to ensure adequate supplies for recycling in local electric arc furnaces.

What is stopping the UK switching from blast furnaces to make the metal, rather than using scrap steel?

· Large electric arc furnaces (EAFs) for recycling steel are expensive to construct. The EAFs to be constructed by Tata Steel at Port Talbot in South Wales are projected to cost around £1.25bn for a projected capacity of 3m tonnes a year (or potentially around 40% of the UK’s total steel needs). The government has committed £500m to assist the transition there from blast furnaces to EAFs.

British Steel (owned by Jingye of China) has stated that the cost of creating two new EAFs on the north east coast will also be about £1.25 billion. The projected total capacity doesn’t appear to have been published but based on the Tata numbers we can perhaps assume a similar figure of about 3m tonnes a year.

· UK electricity costs are higher than nearby countries. Even after the government intervention to reduce the costs of electricity transmission to steelworks, one recent study suggests that the British steel industry pays £66 a megawatt hour (MWh) compared to £50 in Germany and £43 in France.[1] Because electric arc furnaces use about 0.5 MWh per tonne of steel output, these higher costs can mean a handicap of £11.50 a tonne of steel from an EAF. At current finished steel prices of around £500 a tonne ($660), this imposes a burden of over 2%. In a low margin industry such as steelmaking, this difference is significant.

· Falling UK demand for steel has imposed an additional weight on investment enthusiasm. Investing £1.25bn in a shrinking market looks a dangerous decision to take. On the other hand, some demand increases are likely in future; wind turbine columns alone might add 1m tonnes a year to UK needs.

· EAFs need far fewer employees per tonne of output, making it politically difficult to allow the closure of a major source of local employment in Scunthorpe. And any new EAFs in that part of the UK will take several years before they begin to hire permanent staff.

The advantages of using EAFs rather than keeping the Scunthorpe blast furnaces open

· EAFs use local scrap metal, reducing the amount exported.

· The UK scrap also contains other metals, such as copper, increasing its value and reducing the need to import materials.

· EAFs produce much less local air pollution than the older steel-making method.

· The carbon footprint of EAFs is about one sixth of steel originating in blast furnaces. The figures will depend on the fossil fuel intensity of the electricity used but most sources estimate a footprint of about 0.35 tonnes of CO2 per tonne of steel, compared to about 2 tonnes from the blast furnace route. Replacing the 2023 4.5 million tonnes of steel with EAF output would save about 7.4 million tonnes of CO2 or just under 2% of UK emissions.

· Potentially the economics of using scrap could be better. The open market scrap price is around $350 per tonne, equivalent to £263 today, or just over half the value of a tonne of steel in the UK. The price of raw materials is likely to be more stable, avoiding the need to have to buy much coking coal and iron ore on international markets.[2]

· EAFs can help stabilise the electricity market, using power mostly at times when the wind is blowing and not at times of scarcity. Unlike blast furnaces, EAFs can decide when to operate. While not a trivial exercise, steel-making can adjust its demand to match national supplies of electricity.

In summary, both industrial strategy and carbon reduction aims should push us towards EAFs rather than keeping open the Scunthorpe blast furnaces. It makes very little sense to spend large sums keeping the furnaces open rather than sponsoring the building of new EAFs when the UK has such abundant supplies of metal for recycling and the carbon footprint benefits may be equal to at least one per cent of the UK emissions. This is not to dismiss the profound social consequences of the reduced employment prospects for steelworkers in the Scunthorpe area.

[1] https://www.uksteel.org/electricity-prices

[2] EAFs use some iron ore and some coal but in much smaller quantities than blast furnaces.