UK cement sector ‘at risk of cracking’ despite industrial strategy
Production in the UK cement sector is rapidly declining, according to industry leaders, despite government efforts to slash high electricity prices as part of its industrial strategy published on Monday.
Prime Minister Keir Starmer appealed to thousands of manufacturers across the country with plans to reduce energy bills by 25 per cent from 2027 after changes to energy markets and carbon taxes are made, with UK firms currently paying four times as much on electricity compared to US peers.
Industry leaders in the cement sector, essential in the drive to build more homes and key infrastructure, have warned construction firms could become more dependent on imports as manufacturing continues to decline.
Early estimates suggest output could hit record lows in 2024, with high energy prices hampering 10 cement producers in the UK.
The government is yet to provide concrete plans on support for the critical minerals industry despite its new industrial strategy. A new policy paper on minerals is expected to be published within months.
Diana Casey, executive director of the Minerals Products Association, said new project opportunities outlined in last week’s published infrastructure strategy gave cement manufacturers some new-found hope on demand picking up.
But Casey warned domestic production could dry up and get overtaken by imports from EU countries and northern Africa due to high electricity prices in the UK, with firms telling Casey they were paying as much as a third more on energy in Britain than they were elsewhere.
Official data compiled by the Institute for Energy Research has shown that industrial electricity prices were around 50 per cent higher in the UK than in France and Germany, and four times as expensive as in the US.
“I guess [the government] can choose to kind of invest in a domestic industry that has jobs across every region of the UK, and highly paid jobs as well, or they can choose to import and that kind of opens them up to the risk of kind of security of supply issues,” Casey told CityAM.
“The UK is also quite committed to decarbonising, and if you’ve got your production here domestically, you have some control over how that decarbonisation happens.”
Imports of cement have nearly doubled over the last ten years, with the total share of imports reaching over 30 per cent compared to just 12 per cent in the 2000s.
Casey added that UK cement makers’ competitiveness had “eroded” because foreign businesses did not have to pay carbon taxes as part of emissions trading schemes while British companies did.
That has made cement factories overseas more attractive, particularly when cheaper labour costs were taken into account, according to Casey.
Industrial strategy’s importance to UK manufacturers
The industrial strategy set out plans to introduce a carbon border adjustment mechanism that ensures overseas products face a “comparable carbon price” to those domestically produced.
Net zero-related costs added through extra network levies and the unreliability of intermittent renewable energy had only put cement manufacturers at risk of cracking under more pressure, with a lack of consistency allowing foreign companies to “undercut” UK producers.
“The government is going to need cement and concrete, and we want them to really maximise the benefit of the growth they’re trying to generate by procuring domestic cement,” Casey added.
Ben Fletcher, COO of Manufacturing industry body Make UK, said an upcoming consultation on thresholds that will allow electricity-intensive manufacturers to claim subsidies and pay less on energy will be crucial in saving the UK’s struggling producers.
“We will be pushing hard on ensuring that all of the manufacturing sector receives this support and the government moves at pace on the consultation and importantly the implementation,” Fletcher said.
The industrial strategy was largely overshadowed by an escalation of a conflict in the Middle East after the US intervened over the weekend.
Manufacturers could yet be affected by a further climb in energy bills as oil prices could surge to $110 a barrel if flows through the Strait of Hormuz halved, according to Goldman Sachs.
A survey of 260 companies by global consultancy Inverto found that 84 per cent of manufacturers were revising supply chains to avoid extra costs.
Vicky Parker, an energy and resources consultant at PwC, said government officials would be closely watching developments in oil prices and how it could affect the UK’s industrial strategy.
“If prices were to spike considerably, this would raise questions over the overall policy affordability and reignite the ongoing debate as to how to ensure the UK manages its exposure to ongoing volatility in energy costs,” Parker said.