The British steel industry was dealt a further blow on Wednesday as Tata Steel announced the mothballing of a plant in South Wales for the third time in six years, potentially putting 250 jobs at risk.

The company said that it would cease production at its hot strip mill at Llanwern in order to “reduce costs and focus on manufacturing higher-value products”.

While Tata Steel said that none of its direct employees would be made redundant because they would be redeployed elsewhere in the business, the trade union Community claimed that 250 agency workers would lose their jobs at the site, where the company employs 1,500 people.

Discussions are to be held with contractors on the potential impact, although Tata Steel insisted that the facilities could be “restarted in more favourable market conditions”. It will concentrate on production of hot rolled coil at its plant in Port Talbot.

Stuart Wilkie, Tata’s UK director of strip products, said: “Tata Steel has invested upwards of £350 million to improve the steel industry in Wales in the past five years. But surging, and often unfairly traded, imports have combined with a strong pound to create a very challenging business environment.”

The announcement comes little more than a month after 720 employees at Tata Steel plants in South Yorkshire and the West Midlands were told they were likely to lose their jobs. Since 2009, the company has shed almost 1,800 well-paid jobs in the UK.

European demand for steel collapsed after the financial crisis and is still around 25 per cent below its peak. While steelmakers across the continent have been squeezed in recent years by a flood of cheap Chinese imports and low prices, their British counterparts also face higher energy costs, in part down to “green” taxes levied on highly polluting industries.

John Park, assistant general secretary of Community, said: “Today’s news is disappointing if not surprising [and] underlines the desperate and urgent need for UK government to use all the levers at its disposal to support our steel industry, particularly in relation to reducing the crippling burden of energy costs.”

The latest plant closure also reflects a trend among European steelmakers to move away from producing lower quality steel in large volumes and opt for lower volumes of higher-quality “differentiated” products that sell at a premium. Such “differentiated” products account for around one-third of Tata Steel’s sales by volume.

The Department for Business, Innovation and Skills said the government had provided £35m in compensation to help steel companies offset electricity costs, as well as voting for the extension of EU anti-dumping measures on Chinese steel products.

Anna Soubry, business minister, said: “There is no doubt that the steel industry is facing very challenging market conditions, with global overcapacity, steep falls in prices and currency devaluations. I will continue to meet with companies like Tata and provide support where we can.”

Anglo-American industrialist Gary Klesch walked away from talks to buy Tata’s rail and plate-making business in Scunthorpe earlier this month, citing frustration at the government’s apparent lack of interest in the sector.