Steel Politics

In April of this year, the UK Parliament was recalled for an emergency session—the first of its kind since the 1982 Falklands War. Parliament was summoned to vote on urgent measures aimed at preventing the closure of the two blast furnaces at Scunthorpe steelworks, the last remaining in the country following the closure of those at Port Talbot in 2024. If passed, the shutdown would have positioned the UK as the first G7 (and G20) nation to cease the integrated production of crude steel via blast furnaces.

The Scunthorpe steelworks were ultimately rescued by a managerial government takeover.  But the debate over their future presents an important reality. Across much of the West, the steel sector is in crisis. Last June, Japan’s Nippon Steel closed its nearly $15 billion purchase of its American rival US Steel, which was conditional on $11 billion in new investments to be made by 2028. In the EU, industry giants like the German company ThyssenKrupp have announced major job cuts. Since their bailout in 2024, the Italian government has struggled to sustain the Taranto steelworks—the largest in Europe. 

Overall, G7 countries, once the exclusive club of industrialised nations, now account for a mere 13.1 percent of global steelmaking production (the number would fall to 8.7 percent without Japan). Twenty five years earlier, they were at 40 perecnt.

The notion that advanced economies have transcended the need for domestic steel production is fundamentally flawed. At the global level, steel use has increased in recent decades. Global per capita consumption of crude steel has averaged 224 kg in the past five years— up from around 150 kg in the mid 1980s. Unsurprisingly, among the highest per-capita steel consumers are high GDP countries: South Korea (991.2 kg), China (652.6 kg), Japan (435.4 kg), Germany (368.9 kg), Canada (354.2 kg) and the US (266.5 kg).

With Western steel production in decline, other countries are picking up the slack. Though they account for 45 percent of the world’s population and for around 40 percent of global GDP (measured at purchasing parity power), BRICS+ nations currently represent a staggering 70.5 percent of global steelmaking production, up from 31.2 percent in 2000. China has surged as the dominant steelmaking superpower, representing more than half of global production. 

This global imbalance in steelmaking is significant. The basic functioning of a modern industrial economy relies on a secure supply of high-quality, affordable steel to support strategic manufacturing activities and critical infrastructure. Globally, 52 percent of all steel is used to build essential infrastructure. Bridges, railways, pipelines, housing, clean energy systems and digital networks would be unimaginable without steel products. The same is true for transport: vehicles such as cars, trains, and ships account for another 17 percent of global steel consumption.

16 percent of global steel use is devoted to producing the machines that manufacture everything else, including the electronic devices and food products we consume. Steel is irreplaceable in the production of everyday metal goods and household appliances, which together make up 12 percent of total steel usage. 

Steel is also essential for the green transition. Because it is an essential input for clean energy equipment and infrastructure, global demand for steel in clean technology manufacturing applications is projected to increase three-fold by 2035 under the International Energy Agency’s (IEA) net zero emissions scenario. 

Efficient and affordable steel production is therefore essential to any transformative economic agenda. In order to meet the developmental and environmental challenges of the coming decades, Europe and the US must rethink their relationship to steel. They must embrace a long-term structural approach that prioritizes its production and decarbonization. This will, in turn, necessitate rediscovering the virtues of industrial planning and public ownership. 

Steel making in the age of capital

Modern steelmaking began in 1865 with the introduction of the Martin-Siemens process, pioneered by two engineers – the French Pierre-Émile Martin and the German-British Carl Wilhelm Siemens. But it was Britain, with its natural endowment of coal and long-established ironmaking capabilities, that immediately became the global frontrunner in steelmaking. In the nineteenth century, British steel production was the driving force behind the Second Industrial Revolution 1Chris Freeman and Luc Soete, The Economics of Industrial Innovation. Routledge, 1997 . British steel production remained unmatched until 1890, when it was surpassed by the United States 2Ilva, Ilva. Altiforni e acciaierie d’Italia 1897–1947, 1948 . 

Steel’s first major applications were in railway and long-distance shipping, making the world smaller and more interconnected. By the end of the century, process innovation in steelmaking had decimated production costs, enabling the widespread application of steel in mechanical engineering and manufacturing—facilitating the Third Industrial Revolution and the era of mass production. By the mid-twentieth century, steel was ubiquitous: in transport infrastructure, construction, machine tools and durable consumption goods such as automobiles and electrical appliances.

In both North America and Europe, steelmaking was a highly lucrative business. In 1901, U.S. Steel was founded by James Pierpont Morgan, Charles Schwab and Andrew Carnegie through the merger of Carnegie Steel, Federal Steel, and National Steel. For much of the early twentieth century, U.S. Steel was the largest corporation in the world: the first to achieve a $1 billion market capitalization. By 1955, it still ranked third among US companies by revenues and seventh by profits 3 Fortune, (<)em(>)Fortune 500 List 1955(<)/em(>) , and in the late 1960s the US accounted for 22 percent of global production. It remained the world’s leading steelmaking nation until the early 1970s.

In Germany, vertically integrated giants like Thyssen and Krupp formed the backbone of the country’s industrial strength and military power, securing vast fortunes for their founding families. It was significant that, after World War Two, the core driver of European economic integration was cooperation on coal and steel. In 1951, the European Coal and Steel Community was established to reduce tensions over such resources, promoting the development of national steelmaking industries. This early cooperation would form the groundwork for what would later become the European Union.  

US-European hegemony over global steel markets would begin to decline in the 1960s and 1970s, in parallel with the rise of the Japanese steel industry. This had been coordinated and championed by Japan’s powerful Ministry of International Trade and Industry (MITI). Among other supporting measures, MITI promoted the 1970 merger between the country’s two largest producers, Yawata Iron & Steel and Fuji Iron & Steel, to form the national champion Nippon Steel Corporation 4 Daniel Okimoto, (<)em(>)Between MITI and the market: Japanese industrial policy for high technology(<)/em(>). Stanford University Press, 1989 . Nippon Steel quickly became the world’s largest steel-producing company by crude steel output and maintained that position until 2000. In 2023 it still ranked fourth. 

But it was the 1973 and 1979 oil crises that dealt a fatal blow to the US-European steel supremacy. For decades after WWII, steel production had accompanied the Western model of economic development, sustained by an investment-driven industrialization process. Suddenly, the oil crises derailed new investments: soaring energy costs and heightened uncertainty stalled economic growth, forcing industrialized economies to shift away from energy and capital-intensive sectors. This had a major negative impact on steel demand and production. 

Global steel production peaked in 1974, after three decades of continuous postwar expansion. It then stagnated for the next 25 years. The world’s crude steel output surged sixfold in volume between 1946 and 1974, while edging up by only 12 percent between 1974 and 1999. Suddenly, steelmakers were forced to compete aggressively in a stagnant market. Once highly profitable companies soon found their financial accounts deep in the red. 

The 1970s steel crisis prompted a profound industrial restructuring across Europe and North America. Subsidies, nationalizations—notably under France’s Mitterrand presidency in 1981, and the introduction of protectionist quotas by the European Community throughout the 1980s were accompanied by plant-level restructuring and forced redundancies. The results were rising social tensions in affected regions, even as these measures improved the financial viability of steel producers. In the 1990s, mergers among national champions aimed to increase economies of scale. Arcelor, for instance, was created in 2002 through the merger of Arbed (Luxembourg), Aceralia (Spain), and Usinor (France), before being acquired by the Indian giant Mittal in 2006. A similar consolidation occurred in Germany in 1999, when Thyssen and Krupp merged to form ThyssenKrupp.

But these efforts nevertheless failed to address the underlying structural weakness in demand for steel products. In fact, the opposition to industrial policy and conservative fiscal policies of the 1980s and 1990s accelerated deindustrialization in the Global North and reduced the scope for public infrastructure spending. As a result, the European and American steel industries never fully regained their production and competitiveness levels. Today, they together account for just 10 percent of global crude steel production, and many of their struggling players have been subject to foreign takeovers. 

From British Steel to Baowu

The world’s first major steel producer has taken a dramatically different trajectory from its present one. Last year, the UK produced just 4 million tonnes of crude steel, as much as it made in the late 1800s. Meanwhile, China has risen to become the world’s fifth-highest per capita steel consumer in the world at an astonishing 634.8 kg per capita 5 After South Korea, the United Arab Emirates, Taiwan, and Slovenia . Its crude annual steel output quadrupled between 1999 and 2008. By 2020, it had surpassed the 1,000-million-tonne threshold. It now accounts for an astonishing 53 percent of the global steel production.

The comparative trajectories of the UK and China reveal important realities about the nature of steel production. Most importantly, state ownership and coordinated public planning were instrumental in spurring competitiveness in the case of both the British and Chinese steel industries, though at different stages of their development.

British steel production peaked in 1970 at around 28 million tonnes, most of which produced under the state-owned British Steel Corporation—created following the 1967 nationalization by Harold Wilson’s Labour government 6 Alasdair Blair, “The British iron and steel industry since 1945,” (<)em(>)Journal of European Economic History(<)/em(>), 1997 . The publicly-owned steelmaking corporation could not escape the global crisis that gripped the industry in the early 1970s. British Steel’s financial performance plunged into the red, forcing management to cut production and drastically reduce its workforce, from 200,000 employees in the late 1970s to just 55,000 by 1987. This massive downsizing was partly driven by productivity gains achieved through substantial investments in more efficient production processes, which ultimately helped to restore British Steel to profitability in 1988—just in time for its privatization under Thatcher. That same year, the UK was still producing 19 million tonnes of crude steel.

Since then, the privatised British steelmaking sector has experienced a gradual decline in production, mirroring the country’s broader process of deindustrialization. The UK’s share of manufacturing value added as a share of GDP fell from 16 percent in 1990 to just 9 percent by the early 2010s. Crude steel production dropped below 10 million tonnes in 2010, and declined further to just over than 7 million following the 2015 closure of Teesside Steelworks, which once operated the second-largest blast furnace in Europe.

The spectacular rise of Chinese steel companies is similarly attributed to state ownership. Of the top fifty steel producers in the world, twenty-seven are based in China; only three are headquartered in the EU and four in the US. State-owned China Baowu is currently the world’s largest steel producer. Just this single company produces more crude steel than the entire European Union combined. Baowu reached such incredible dimensions not only by expanding its internal production capacity but also through mergers with other state-owned enterprises orchestrated by the State-Owned Assets Supervision and Administration Commission (SASAC), China’s state-holding company. 

Baowu is far from a standalone example. It is followed by Ansteel (the world’s third-largest steel producer), by HBIS (the world’s fifth-largest steel producer), and several other publicly-owned players. These companies compete at par with privately-owned steelmaking companies, and they are all backed by publicly-owned banks that provide patient and affordable loans for financing the long cycles of investments these companies need.

Until recently, the growth of Chinese steelmaking primarily served the country’s domestic economic development. By building a self-sufficient and cost competitive steel industry, China avoided dependence on foreign suppliers for this critical product—relying only on a diversified import of iron ore—while simultaneously boosting the competitiveness of its downstream industries, particularly those exposed to international trade.

A state-driven enterprise

The British and Chinese experiences reveal an important reality: there has never been a successful free-market approach to steelmaking. Steel is an extremely capital-intensive sector that requires massive fixed investments. These are only feasible with access to long-term, patient capital. Steelmaking is also highly energy-intensive, requiring substantial inputs of coal, electricity, and natural gas. In Europe, this implies cost disadvantages, resulting from its structural dependence on imported natural gas and to electricity markets operating on marginal pricing systems, where the most expensive generation source (typically natural gas) sets the price for all electricity produced. As a result, European steelmakers face significantly higher energy costs compared to competitors in regions with more favorable, often state-administered energy pricing.

Innovation in steelmaking is typically incremental and focused on improving process efficiency. Radical innovation—such as the transition to a fully sustainable steel production—demands long-term investment plans that private capital alone cannot sustain, especially given their thin profit margins. With unavoidably high fixed costs, cyclical fluctuations in raw material and finished product prices further increase uncertainty and narrow the scope for committing to long-term investments.

This generates insurmountable entry barriers to the sector, favoring incumbent players that expand primarily through mergers and acquisitions. Once production capacity is lost, it is rarely recovered. It is therefore unsurprising that the industry is dominated by large firms: in 2024, the 10 largest steelmaking companies accounted for almost 28 percent of global output, while more than half of global crude steel is produced by the top thirty-four companies.

Historically, these challenges have only been overcome through state intervention. The US and Germany became the world’s leading steel nations at the end of the nineteenth century thanks to heavy tariff protection. In Japan, the first steel plant was installed in 1901 by a government-owned company created specifically for that purpose. In the second half of the century, it was again the Japanese MITI that orchestrated strategic mergers to achieve competitive economies of scale. South Korea’s POSCO, currently the world’s seventh-largest steelmaker by output, rose to prominence as a state-owned company, founded in 1968 with support from the state-owned Korea Development Bank. Similarly, half of Italy’s infant steelmaking industry (including all of its primary steel production) was bailed out in 1933 and developed by the state-holding company IRI to become a major driver of Italy’s “economic miracle” in the 1950s and 1960s. 

Finally, China’s current dominance of the industry fundamentally rests on direct state coordination over the past decades. Success would not have been possible without  patient orchestration through a long-term planning process that included strategic mergers and managed competition among key state-owned players, patient favourable financing conditions, and targeted use of public procurement.

Green steel for climate resilience

To undertake the transformational agenda required for the green transition, governments don’t just need to invest in steel. They must make sure that steel production is itself decarbonized. Steelmaking is a typical “hard-to-abate” industrial sector, responsible for approximately 10 percent of global greenhouse gas emissions. The great bulk of steel-related emissions come from the so-called “primary process”, where steel is produced through blast furnaces (BF-BOF). On average, a traditional BF-BOF plant emits more than two tonnes of CO₂ per tonne of steel produced. This is primarily due to the chemical reaction occurring in the blast furnace at very high temperatures between coke, limestone and iron ore. The BF-BOF process accounts for more than 70 percent of the world’s total crude steel production.

The other, secondary, steelmaking process produces crude steel from scrap material melted in an electric arc furnace (EAF). This process is greener than the traditional BF-BOF one, but not entirely green. Substituting coal with electricity is not enough to reduce emissions, if the latter is produced burning fossil fuel. In fact, on a global scale, we are still far from fully decarbonising power generation, with 59 percent of total electricity produced still deriving from fossil fuel plants in 2024. However, even an EAF plant that is fully powered by renewables typically uses natural gas burners to optimise the melting process of scrap material. In this scenario, CO₂ emissions per tonnes of steel produced are substantially lower—around 0.1 tonnes—but they remain non-negligible. 

Eventually, the full decarbonization of steelmaking, including primary steel, can only be achieved through the deployment of green hydrogen. Green hydrogen is produced via electrolysis, a process that separates the H₂O molecule into oxygen and hydrogen, using renewable electricity. One tested process, known as direct reduced iron (DRI), enables the production of steel from iron ore outside the traditional blast furnace, eliminating the need for carbon coke. While a DRI plant can be powered by natural gas, it could also operate using green hydrogen. In this case, primary steel can be produced with minimal CO₂ emissions.

However, turning electricity into hydrogen remains an extremely energy inefficient process and absorbs huge loads of power. A DRI plant operating with green hydrogen may require more than 4,000 KWh of electricity per tonnes of steel produced—nearly 30 times the amount needed for a conventional BF-BOF plant and slightly less than 10 times the electricity consumed by a traditional EAF plant. In addition to the challenges related to investing in the infrastructure for producing and transporting green hydrogen, a key prerequisite for making it economically viable is an abundance of renewable electricity. Which is easier said than done.

Transitioning to a clean steelmaking industry in the near future is technically feasible, but economically impossible without public investment and structural changes in the steel market. Capital expenditure required for switching to DRI plants and building infrastructure for green hydrogen production and storage is prohibitively high for any privately-owned industry player. Moreover, the electricity needed for generating green hydrogen involves high operating costs. Unsurprisingly, when market conditions deteriorated at the end of last year, European steelmakers immediately announced delays in their transition plans. Notably, ArcelorMittal suspended its investment in hydrogen-fuelled DRI plants, despite having been promised €3 billion in financial support from European governments.

Market-based policy interventions such as the EU Emissions Trading System (ETS) have so far proven ineffective in fostering the decarbonization of steelmaking. Similarly, introducing a carbon price on imported steel products through the Carbon Border Adjustment Mechanism (CBAM), entering into force in 2026, is unlikely to have a transformative impact. 

Not surprisingly, the “Hybrit” project, the world’s most advanced initiative for a full-scale DRI plant powered by green hydrogen, is being carried out by a partnership of state-controlled entities underpinned by strong public financing support. The project is led by the steelmaking company SSAB, which is jointly-controlled by the Finnish government and the Swedish state-owned mining company LKAB. The latter will provide the necessary iron ore for the new steel plant. Vattenfall, another fully state-owned electricity company, will ensure the provision of abundant and affordable clean power to produce the required quantities of green hydrogen.

Following government coordinating directives, those companies have remodulated their external dividend payments to prioritise strategic reinvestment into the project. The Hybrit consortium has also received substantial direct financial support from both the Swedish state and the EU, in the form of capital injections, grants and loans. 

Steelmaking is vital for economic development and the green energy transition. Countries in the global North would do well to learn from China’s example, orienting themselves to a future in which steelmaking is recognized as a strategically vital industry and embracing a renewed role for the state in planning to achieve long-term industrial and policy objectives, including through the public ownership and orientation of key industry players and financial institutions.