The ending of blast furnace primary steelmaking at Port Talbot not only signals the death knell of an industry that has played a crucial role in the Welsh economy since the industrial revolution, but will also result in thousands of job losses.

The decision by Indian-owned Tata Steel to transition the huge site to an electric arc furnace steel-making operation, is set against a backdrop of a global oversupply of steel and a pressing need to address climate change and achieving UK and Welsh government net-zero targets.

Tata has also been disadvantaged, compared to some European competitors, on UK energy costs. With Chinese-owned British Steel having already confirmed a move away from primary steel production to arc furnaces, the UK next year faces the prospect of being the world's only major economy without capacity to make steel for scratch.

Electric Arc furnaces will not make up in the short-term for the loss of primary steelmaking production capacity at Port Talbot and Scunthorpe. Steel is a strategic asset for any nation and a vital economic ‘building block.' The UK will become more dependent on imported steel, with all the geopolitical risk that entails in an increasingly trade protectionist and conflict driven world.

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The unions were hoping for a longer transition at Port Talbot to arc furnaces with the continuation of a single blast furnace operation (No 4) up to 2032. Tata concluded that was not a viable option, incurring an estimated extra cost of £650m.

It ruled out maintaining the blast furnaces and reducing emissions through the use of hydrogen. In Europe a number of plants are investing in hydrogen solutions to power virgin steel making. That would have required more than the £1.2bn - of which £500m has been committed by the UK Government- investment that Tata has committed to moving Port Talbot to an arc furnace operation - which will make steel for scrap steel.

It will maintain a hot strip mill at Port Talbot during the transition period and plans to import semi-finished steel for processing in the UK.

Steelmaking at Port Talbot, with the use of iron ore and coal coking is a major contributor to carbon emissions in Wales, at around 20% and is responsible for just over 2% of all UK emissions.

While hydrogen is emerging as an alternative to power virgin steel production, electric arc furnaces are a long-established and commercially proven technology. There is already a significant arc furnace operation in Wales, with the Spanish-owned Celsa plant in Cardiff.

For all the talk of carbon capture and storage technology being deployed, it has never been implemented at the scale that the steelworks would require. That again would have required significantly more investment than the £1.2bn for arc furnaces, as well as the issue of where to store captured carbon that couldn’t be used as a power source.

Tata’s decision is also being driven by the demands of its customers. Whether in automotive or packaging, as well as seeking to decarbonise their own activities, they want to see its suppliers, like Tata, also reducing emissions The Indian-owned steel business which formally split its UK operations from its sister ones in Holland two years ago, has invested more than £4bn in Port Talbot, and the various other downstream businesses in the UK, since acquiring the business from Corus back in 2007.

The steelworks, where its No 5 blast furnace would have come to the end of its extended operational life anyway at the end of 2025, is reportedly losing £1m a day. Tata, having deliberated for the last two years, has now taken the decision that this is no longer sustainable. This will result in around 3,000 job losses across its UK operations (where it currently employs around 8,000), but with the majority impacting Port Talbot. A high percentage of the workforce is drawn from the steel town itself and the wider Swansea Bay city region.

The scale of the job losses, which will also hit contractors and those employed in the steelwork’s wider supply chain, will come as a huge economic blow, not just to the town of Port Talbot, but the wider Swansea Bay region and Wales as a whole. The current primary steel operation contributes around 3% to the total output, GDP, of the Welsh economy. That level of output will not be matched by arc furnaces, which though crucially for Tata offers the prospect of creating a long-term commercial viable operation.

An arc furnace at Port Talbot will have challenges, not least ensuring the quality of steel produced is of a standard and purity to satisfy the needs of end-users.

For Tata’s downstream business, like at Trostre, where many of its customers are leading tinned food manufacturers, they will need to be assured of the quality of steel produced at Port Talbot from scrap. This will require continued investment, and UK Government R&D support, to advance quality levels and the efficient removal of other materials from scrap such as zinc and copper.

Thought also needs to be given at a Welsh and UK government level to ensure that scrap steel from the UK is directed towards new arc furnaces from the likes of Tata and British Steel. The scrap industry needs to be supported to ensure it is commercially viable to supply UK-based arc furnaces. Currently, around 80% of all UK scrap metal is exported. That needs to change.

With the planning process and construction, it will take around four years for a 3mt arc furnace at Port Talbot to become operational.

The jobs being lost at Tata are well-paid ones. Yes, some will be maintained in decommissioning the heavy steelwork operations and construction of arc furnaces, but Tata will be a much smaller operation from an employee perspective.

While hardly a silver lining, and compulsory redundancies will be inevitable, around 40% of the current workforce in Port Talbot are aged 50-plus. This opens up the potential for a large number of voluntary redundancies with Tata to date having a good and fair record on redundancy packages. There will also be additional support of £100m, with £80m from the UK Government and the rest from Tata, to help those affected re-train or find new work. The Welsh Government will also provide its own support.

While varying by area, the current unemployment rate in Wales is below 5%, which in historic terms is low. There will be other job opportunities, even if they are not as well-paid as in the steel industry. While not immediately, new jobs will be created in the port of Port Talbot, which has been granted freeport status under the Celtic Freeport banner alongside the Port of Milford Haven.

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Jobs will be created from renewables, most notably from new licenses from the Crown Estates for new floating offshore wind farms in the Celtic Sea.

It will be a challenge, though, to maximise the benefits for the Welsh economy by creating a vibrant indigenous supply chain and not merely ‘branch plant’ assembly jobs from component beings shipped in from overseas. What the Celtic Freeport cannot become is a magnet for jobs and investment currently located elsewhere - resulting in zero-sum game displacement.

So, the ending of primary steelmaking at Port Talbot is a blow to the Welsh economy. With the UK Government having little appetite to nationalise the plant and provide more funding to allow Tata to move to a hydrogen/carbon storage and capture operation, electric arc furnaces are the only viable way to maintain production, albeit with a significantly reduced headcount at Port Talbot and wider hit to the Welsh economy.