Question 1: The owners of the RedCar Steel plant have blamed falling steel prices for the decision to close the RedCar works. What factors might be contributing to these falling steel prices, and how far might it be possible to forecast future movements in such prices?
As per the recent publication by Steel Market Update (2015), the steel prices especially flat rolled steel, cold rolled, hot rolled, galvalume steel and galvanized steel has seen a downward trend in European Markets. Typical trends projected through the price momentum indicator, used by the Steel Market Update to study the price fluctuations in steel markets reflect the influence of factors like cold weather, inficreased imports, slow production, demand and increasing manufacturing costs. These factors and their combined influence on steel production have had considerable effects on the steel prices in European markets.
According to the Guardian, (2015), the liquidation and closing of the RedCar Steel Works located in northeast England are attributed to the decrease in steel prices in the UK markets. The staff believes factors such as Imports, high pound value compared to other currencies and increased production costs to be the prime reason for the closure of the steel plant. The Teesside plant is the second largest steel plant in Europe which is now heading towards closure. The liquidation will result in cutting jobs for their 2200 employees and the plant closure will further pose threats to the already slowing steel market and the falling prices for various steel products.
One prime factor for the falling steel prices is the cold European weather that leads to slow production and a decrease in prices. The stormy weather is a slowing agent, especially for the scrap availability aspect that results in slow and less steel production affecting supply more than the demand. Steel prices are also affected by factors such as steel mill capacity and service centre stock or inventory levels. Steel production is closely related to the inventory levels and mill capacity which further determines steel pricing. Mill capacity utility and mill order lead times will influence steel pricing as with short mill lead times, the prices of steel tend to fall.
The prime factor, however, for the fall in price is attributed to the influx of low-priced Chinese steel imports in the UK market and according to the RedCar Steelworks staff, the local products cannot compete with such inexpensive imported steel products that are available in the UK market. With the increase in import licences, the prices of steel products fall. The Chinese steel market is a booming industry and there is considerable demand for Chinese Steel products in the UK market. Further, the high costs of energy in the UK have made it difficult for plants to bring in enough coal to meet steel production demands.
Steel demand also affects steel prices and is typically related to the overall economic boom for a certain region. Chinese Imports have a larger role in defining the overall demand for local steel products in the UK industry. Steel demand is driven by various areas such as construction, automobiles, energy, agricultural industries and the service centres in the UK and across the globe (Steel Market Update, 2015). The Red car Steelworks staff also believe the increased value of the Pound Sterling as compared to the other currencies has made a key contribution to the falling prices of steel in the European Markets.
The concern is to gauge how far can future trends in these price fluctuations be predicted and price movements are projected. Economic experts and the concerned steel industry professionals use inventory, production and future forecast models to analyze trends in Steel prices based on the trends in factors highlighted above. The factors like Imports in the market, mill capacity utility and lead times, steel demand, production levels, weather conditions and micro/macro economic trends can be analyzed to predict future pricing patterns of steel and its related raw materials like metallurgical coal, scrap and iron.
Question 2: How could Input-Output analysis be used to examine the economic effects of the closure of this steel plant, and what factors would determine how far the RedCar economy will suffer as a result of the closure?
The RedCar Steelworks is one of the major contributors to the UK economy as part of the Steel Industry and the second largest Steel plant in Europe. The closure of the Teesside Plant will have significant effects on the economy of the UK market that can be gauged through the input-output analysis. As one of the largest steel producers in England, it is a huge private-sector contributor to the employment sector by employing thousands in on-site and off-site activities generating direct and indirect impacts in the sectors of manufacturing, construction, energy sector, and direct employment and supply chain functions through its output. The closure of the Teesside plant will hence affect the input to these particular sectors.
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The RedCar steelworks through its steel production employs thousands of workers for the production work including other steel plant operations. The employment output plays an integral part and adds value to the supply-chain functional area through the jobs created for the workers including the other companies that supply materials and other services to the Teesside Plant. Such workers include subcontractors, firms and people that provide transportation services and materials for industrial processes. These impacts move through the supply chain as the RedCar subcontractors buy these impacts from related UK companies.
The re-spending of employee salaries is also a significant impact that sparks demands in the economy creating value for the employment sector and the UK region. The off-site effects would be a combined total of both these impacts and when combined with overall onsite impacts would lead to the economic influence on full-time employment. Almost 2200 employees at the Teesside plant contribute to the industrial output of the UK through their jobs but the closure would result in a downward trend for these impacts affecting the employment sector and the supply chain sector as well. The on-site and off-site employment impacts would suffer as a result of decreasing inputs to supporting industries. The 80 million pounds subsidy to the employees from the government might offset a small portion of the loss as a result of the closure through employee spending and job-hunting.
Further, the industry output that is contributed to the energy, construction and manufacturing sectors as a result of steel production by the Teesside plant will also take a toll after the closure. Hence, the economic output will be affected overall in the UK.
The output to the UK economy as a result of the steel plant's activities related to employee wages and supply chain. The indirect impacts as a result of the wage effects reflecting the employment-multiplier effect with employees re-spending their salaries including the supply chain impact add to the overall economic impact of RedCar Steelworks which will see a downward trend post-closure. Off-site impacts also include those generated by firms providing transportation and other related services to the Teesside plant for steel products which will be affected. The exports of steel products will also be affected.
The Steel plant contributes to environmental impacts in terms of carbon emissions and other pollutants. The harmful effects of these environmental impacts lead to increased social costs that need to be regulated. These effects would tend to reduce after the closure of the steel plant which seems like a benefit.
The RedCar Steelworks economy will be dependent on the UK economic trends including factors like Chinese steel imports, energy costs and the growing value of the pound sterling. A government subsidy or funding for increasing steel production and meeting demands can help the crumbling RedCar Economy ensuring that it contributes to the UK economy through its operations.
Question 3: What would be the problems of using Input-Output analysis in this case?
The use of the input-output analysis requires the construction of input-output tables that are information intensive and require a lot of data related to economic growth and trends. The process requires information gathering through surveys and other means or methods with regards to the particular organization involved and the specific information needed. The analytical method is a data-hungry process for which accurate and reliable information is important.
The limitations and difficulties in such scenarios were input. Output data is required are the availability of the information required to construct the input-output tables, the sources from which the particular data is being solicited and to ensure whether the provided information is accurate and reliable or not. The case study relative to the economic implications of the liquidation and closure of the RedCar Steelworks plant in Teesside is dependent on statistical information from various departments in the steel plant to gather economical output and its flow to other functional areas.
For this particular scenario, information related to the RedCar Steelworks organization is required that can be used to construct the input-output tables to analyze the various direct, indirect and multiplier impacts relative to its output through Steel Production. To accurately predict and evaluate the effects of the closure of the plant on the UK economy and the future projections of the Teeside plant economy, accurate quantitative data related to employment, production, costs and supply-chain is required to apply the input-output analysis successfully. The data is limited in this scenario and based on theoretical details it is difficult to assess the actual economic implications and impacts of the closure of this steel plant in the UK.
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