The First World War caused an immense dislocation of the iron and steel industry along with a massive demand for iron and steel products. The demand naturally led to expansions, but not all were technically sound or well located. Demands of war also caused amalgamations and cooperative ventures between privately owned iron and steel companies. Due to shortages and the competing demands of the Ministry of Munitions, the Admiralty and others, the Government was forced to impose controls on both steel prices and distribution. During the war there was some apprehension about future demand versus capacity and the possibility of financial problems.
At the end of the war hundreds of privately owned firms existed, but the greater proportion of production lay in the hands of a small number, and there was very large potential to over supply the peacetime market. There was also the possibility that the structure, locations and technical ability of the industry might not be as good as it would need to be to face peacetime competition.
Peace brought a short-lived boom, which suggested demand for iron and steel would continue to rise. Subsidies continued for a few months after the armistice, before being phased out in two stages in February and May 1919. Furthermore, some foreign markets were effectively closed through protective measures adopted by the country's government. In the case of Germany, exports were forbidden and steel exports were only permitted after the peace treaty.
The boom was short lived. By the early 1920s, demand for steel and iron had collapsed and the industry was facing problems. Although it had a great deal of surplus capacity many of the products it could make and sell (such as steel for railway tracks) were no longer in demand, or its machinery was so old it could only be used at times of heavy demand and high prices. The industry had also mismanaged its finances; many firms were in the hands of banks and had no working capital, let alone money to invest in new plant. With no money to invest, the chances of clearing surplus capacity and outdated machinery were almost non-existent.
By allowing the dumping of cheaper foreign imported iron and steel onto the British domestic market, the British Government's increasingly difficult adherence to free trade also disadvantaged the iron and steel industry during the slump of the 1920s and the depression of the 1930s. The return to the gold standard in 1925 accentuated the problem by making foreign imports even cheaper. The industry clamoured for protection from foreign imports, but the government turned down these entreaties. To make matters worse, appalling working conditions and the subsequent deterioration of labour relations in the coal industry (and the resulting strikes) removed the energy source for the industry at periodic intervals.
During the 1920s and 1930s, many steel companies and iron works collapsed and went out of business. By 1928, both the banks and the government were deeply worried about the shape of the industry, and rationalisation seemed the way ahead. Firms merged into larger conglomerates and, by the 1930s, the iron and steel industry was operating as a cartel, controlling price, contracts and capacity in an effort to stay in business. By the mid to late 1930s some investment was being made but progress was painfully slow. More importantly, rearmament was rapidly increasing the demand for steel.