Last week’s announcement of 1,400 redundancies at steel group Corus brought condemnation from both politicians and trade unions, tempered with relief that it had not gone further. But if demand for steel from UK industry fails to pick up again soon, further major capacity cuts could be made.
Before last week, Corus’ strip mills at Llanwern and Port Talbot in south Wales were thought to be most at risk from closure. Instead, the axe has fallen on its engineering steels division, based mainly in south Yorkshire. This will lose 1,200 jobs through the closure of Tinsley Park re-rolling works, the shutting down of one furnace at Rotherham and a general reduction in shopfloor and management jobs.
According to Corus, demand for engineering steels in the UK has fallen by 18% over the past five years, with no sign of any recovery. Profit margins have also dropped, as the automotive sector, which accounts for 60% of demand for the division, continues to exert relentless downward pressure on prices.
A further 230 jobs will go over the next few years as Corus restructures its research and development activities, currently spread over three sites. The technology centres at Middlesbrough, Rotherham and Port Talbot will close and a new centre employing 450 staff is planned for completion by the end of 2001, probably in south Yorkshire.
The technology centre at Ijmuiden in the Netherlands – formerly part of Hoogovens, which merged with British Steel to form Corus last year – will be retained.
Last week’s redundancies are unlikely to be the last. Corus said in February that 3,000 jobs could disappear within the next two years, and any redundancies are more likely to take place in the UK than in the company’s eurozone operations.
The group still has overcapacity in strip steel manufacturing. This will become even more apparent once Ford ceases manufacturing the Fiesta model at its Dagenham plant.
Andrew Chambers, steel analyst at stockbroker SG Strauss Turnbull, says: `The announcement does not affect the south Wales strip mills.’
Llanwern and Port Talbot, which employ about 7,000 between them, are still vulnerable to closure. And the tinplate works at Ebbw Vale, which relies on Llanwern and employs 2,000 people, could also be at risk.
The high value of sterling against the euro over the past three years has reduced demand for UK-made steel in two ways. British steel has become more expensive than steel made on the continent. But more importantly, UK manufacturers, particularly in metal products, have suffered a drop in demand as their goods have become less competitive.
However, the euro has recently started to rise against sterling, and if this continues it can only mean good news for these plants. As long as steel-consuming manufacturers do not go out of business, a newly competitive exchange rate should allow them to build on their recent huge improvements in productivity.
The longer-term concern for all Corus plants is that large scale steel production could be moved to a low-cost base in Poland, right on the doorstep of the European Union’s largest market in Germany. But Chambers believes there will be less of a threat to plants in the UK than elsewhere in Europe, provided domestic demand recovers.
At present, 50% of UK-manufactured steel goes into the UK market, and much of it would either be expensive to transport, or difficult to supply on a just-in-time basis if it was made thousands of miles away. Relocation would also be expensive.
Chambers says: `It would cost billions to close down plants here and then build new ones. And how long would all that take?’