Burnishing steel at Port Talbot

Rhys David says Tata’s willingness to invest in Wales tells us that an iconic industry will continue to be a major part of the Welsh economy

Rhys David is a trustee of the IWA and writes on business and economic matters.

First a world film premiere at the town’s Apollo cinema – for The Gospel of Us, the film version of Michael Sheen’s National Theatre Wales Passion play – and now an investment of up to £800 million over five years in Margam by India’s Tata Steel. Things are certainly looking up for Port Talbot.

There are, of course, a few caveats that need to be mentioned. The centrepiece of the new spending plans – the rebuilding of one of the plant’s blast furnaces at a cost of £180m – was first announced in 2010, and work is due to start in June this year. Other spending on environmental improvements has also already been foreshadowed, including a gas project and a sustainable building research centre. Where the rest of the money will go has yet to be fleshed out.

It is fair to say, too, that operating a plant the size of the Port Talbot works requires significant investment every year just to keep facilities running. Indeed, one of the first actions the Indian maker of Jaguar Land Rover Cars, Tetley tea and a myriad other industrial and consumer products across five continents, took after acquiring the works from Corus was to spend £200m million on cost-saving efficiencies. Significantly, too, Tata’s plans – which have received worldwide publicity from the Wall Street Journal downwards – came not from Tata’s headquarters in Mumbai but from Cardiff, just ahead of May local council elections.

Nevertheless, it would be churlish not to welcome First Minister Carwyn Jones’ triumphant announcement on his return from a visit to India, and the news, too, of the re-lighting of the furnaces at the former Corus plant on Teesside by its new Thai owners, SSI. Since acquiring the Anglo-Dutch company, the product of a never very happy merger between British Steel and Hoogovens, Tata has shown a commitment to its steel operations in Wales which was lacking from its previous owners.

The latest suggestions that it is prepared to invest in the plant, together with the long-term signal which a new blast furnace represents, will certainly come as a relief to the 5,000 strong workforce. It will also reap rewards in improved morale at the plant where further cuts and possible closure have been the fear for some time. Steel in Wales clearly has a future.

The prospects for the two steel investments in Wales and in Teesside are probably quite different. Indeed, both portend something else as well about UK manufacturing. Over recent months pharmaceuticals giant Glaxo Smith Kline has unveiled £500 million plans for a new plant in Cumbria and expansion at its Scottish operations, creating 1,000 jobs. This was a welcome reversal of the closures that had been taking place in the sector, notably Pfizer’s decision in February to close completely a huge research and manufacturing facility in Kent with the loss of 2,400 jobs. Tata itself is investing heavily in its Jaguar Land Rover operations, Japanese carmaker Nissan is to build new compact and hatchback cars in Sunderland and Germany’s BMW is investing £500 million to build the next generation of Minis at its Oxford plant to meet strong world demand.

What this indicates is that Britain as a place to manufacture is becoming more attractive, even though the Government’s rhetoric on the subject remains mainly that. New investment is clearly being installed, too, with overseas rather than domestic or even mainly European demand in mind. The Teesside steel plant is apparently going to be making steel slabs for export to Thailand, where they will be re-rolled to make the sheet steel for cars and consumer durables. Tata’s motor industry investment – and BMW’s – is designed to meet growing demand in wealthy Asian markets. Much of Port Talbot’s steel, once the staple of UK and European manufacturers of car bodies, washing machines and refrigerators is met, is also going abroad.

The resurgence can, of course, be attributed in part to the decline in the value of the pound against other currencies since the start of the economic crisis four years ago. However, the re-emergence of manufacturing in Britain is also a recognition of the expertise that still exists in sectors such as steel. The new Asian owners can see that quality brands that have very often been built up over many years can still often be best made close to their sources of inspiration. Consumers in the new economies are increasingly acquiring the wealth needed to purchase these quality products.

In a parallel development in the US, ‘re-shoring’  – the return of manufacturing processes and jobs – has been under way for the past year. In this case the move reflects growing disillusionment with rising transport and other costs when supplies have to be transported from thousands of miles away in previously lower cost manufacturing centres.

The Tata story should give renewed confidence to businesses in Wales but there is perhaps another lesson, too. While the Welsh Government’s strategy of looking to support identified ‘growth’ sectors is useful, nurturing those businesses in which we have long experience, such as steel and engineering, and where the potential to employ significant numbers of people, remains just as important.

Some of the surefire winners of the past and the sort of businesses Wales was being told it must enter into, such as consumer electronics, are now looking much more fragile, as the histories of two of Wales’s one time Japanese stars, Sony and Panasonic, suggest. While steel was once being written off, it is now the remaining 300 workers at the Sony plant in Bridgend who are wondering whether they will be affected by the 10,000 jobs being cut worldwide by the Japanese group as it struggles to recover from a $6.4 billion loss last year. Panasonic, another of the 1980s Welsh inward investment stories, has already substantially cut back on its operations in Cardiff and Newport, significantly reducing its workforce in both cities, though it has recently announced that it will be bringing a £2 million fuel cell research centre to the capital.

Tata executives have subsequently made clear its £800 million proposed investment in Wales does have some of the characteristics of a wish list. As they have not been afraid to say, the Welsh (or British) Government will have to foot some of the as yet undefined part of the bill if the projects planned for the next five year period are to go ahead. Perhaps what is most important, however, is that Tata executives believe that despite the high environmental cost of meeting carbon reduction targets – something on which they will also be likely to ask for Government help – Wales and steelmaking are still a good match.

Whereas the old European top management of Corus had evidently tired of running steel and aluminium plants in competition with hungrier rivals around the world, Tata’s steel business directors have been happy to come to Wales – and in some cases to live here – and to note the opportunities available, including the possibilities opened up by the presence of large reserves of coking coal directly under the plant.

Just as significant, however, is the investment the company is already planning on restoring research and development facilities at Port Talbot. They have established a centre that will develop special coatings to generate energy and use the steel surfaces on buildings for other sustainable objectives. Tata’s investments in research– even before they start to get close to the promised £800 million overall figure – could position Wales at the forefront of an important new component of green technology.

While you’re here, we’ve got something to ask you: will you join us?

We’re working every day to bring the right people together and generate the ideas to make Wales a world-leading force.

We’re independent of government and political parties. We provide a much-needed space for open, transparent debate about the ideas that can make Wales better.

To continue to do this, we need people like you to join us.

Join us today and you’ll be supporting vital work that’s making our country better than ever.

Find out more