Examination of Witnesses (Questions 160
- 179)
WEDNESDAY 14 FEBRUARY 2001
SIR BRIAN
MOFFAT, MR
ALLAN JOHNSTON
AND MR
DAVID JACKSON
160. Certainly in the past in the coal industry
they have had operational problems, sometimes brought about by
pit closures and sometimes that can be a factor.
(Sir Brian Moffat) My understanding is that a lot
of those were geological or geophysical problems. We have had
operational problems basically in hot metal areas, largely to
do with refractory linings, which is a hazard of the industry
we are in. Not unlike the hazards in some of the chemical and
glass industries, it is not fundamental to but has figured in
the decision-making process. We are not complaining about the
operational efficiency of the plants, we would like them always
to be operating in the circumstances more efficiently than happened
then but we are not fundamentally complaining about the lack of
skill and operational efficiency of the plants. I have made that
quite clear right the way through to the unions and to the workforce.
161. Do you mainly export to Europe?
(Sir Brian Moffat) The majority, 85 per cent, of our
sales go into Europe.
162. You made the point earlier, and I am not
going to go back over it, about the high freight cost, but how
does that compare when you are exporting the 15 per cent outside
Europe?
(Sir Brian Moffat) What we tend to do outside Europe,
and indeed in structural steels, which you may know about, is
we export structural steels for the big projects in various parts
of the world right through to the Far East. They travel; they
are not commodity products. Very few manufacturers in the world—there
are only three or four—can manufacture the sizes that we
can manufacture or the product range we do. On many of the infrastructure
projects you see and indeed the large structures you see around
the world, they use our steel. They are made of our steel and
they have been delivered effectively in a meccano-type package,
not by the tonne but by the project, and we gain a very great
competitive advantage through that. Ironically, because of the
competitive advantage we can give to the consumer by only having
one supplier, one set of stock yards, et cetera, with a delivery
system which facilitates unloading in the order he puts the building
or whatever up, that more than compensates for the excess freight
charges even to those parts of the world.
163. Looking at the Netherlands, you have a
problem with Ijmuiden Long Products Mill, how much has the difference
in the labour laws for example in the Netherlands forced you to
take a different approach to that particular plant as opposed
to what you are doing in this country?
(Sir Brian Moffat) We have announced that the Netherlands
plant will be closed this next month. It is not competitive. It
was the first closure announced.
164. What is the method of consultation? Has
there been a different one?
(Sir Brian Moffat) Exactly the same process as we
have in the UK or in Germany or wherever we are, in Sweden or
the US.
Mr Laxton
165. You made reference earlier to the issue
of Nissan sourcing finished steel product from outside maybe even
the EU, but have you seen any other falls in demand for steel
in other industries—aerospace or some of the packaging industries?
Are you seeing a trend there as well?
(Sir Brian Moffat) The domestic appliance industry
is not very large now in this country. What we call the yellow
goods industry—earth moving equipment, the heavy equipment
for moving earth and big machines used on infrastructure—is
receding. In fact in the Prime Minister's own constituency there
was a major closure two years ago and we were the major supplier
to that plant. There are signs of it around the patch.
166. And that includes aerospace as well?
(Sir Brian Moffat) Aerospace is a mixture. We have
a very small, specialised aerospace steel product business and
we have a very large aluminium business which makes the sheet
for aeroplane people like Boeing and Airbus and so forth. At the
moment that industry is going very well but it does not consume
a lot of steel. Basically in steel terms most of the steel used
in the hydraulics for landing equipment and the landing equipment
itself is steel, and we have a high proportion of that market
around the world, but unfortunately it is not a big market. In
fact, as we were saying this morning, the aeronautical market
worldwide for aluminium is only 160,000 tonnes and we are the
second major supplier in the world of that. It is a small, specialised
market, as is under-carriages.
167. What about Ebbw Vale? Has Ebbw Vale fallen
victim as a result of the success of the use of aluminium?
(Sir Brian Moffat) I would not say so. I think Ebbw
Vale has fallen victim because we have three other plants with
inherent capacity, subject to one line being moved, which can
take up that which Ebbw Vale makes. Ebbw Vale is making a very
narrow product range in the tin mill business, whereas the other
ones are making a much wider and more efficient product range.
There is not, as you will see when you go round supermarkets,
much demand these days for food cans. Cans are in the specialist
areas of beverages, and that has an aluminium competition too,
aerosols and things like that. The market has changed because
of the competition from plastics and other materials.
Mr Hoyle
168. Can I move you back? You were talking about
market share in the UK and I understand it has shrunk, I recognise
that, but in fairness your volume within that market is shrinking
as well. I wonder why? I wonder if you are actually supplying
some of that shrinkage from Corus plants on the continent? If
we take where you are actually seeing plants closing in the UK,
I wonder if we are seeing an expansion in France where you have
bought a company for 84 million and invested 22 million to supply
rail. I wonder what the ethos is behind that. Do you think there
is fair competition in Europe or do you think there is partial
public ownership which could be giving you a disadvantage? Does
the steel aid code work in your favour or against you?
(Sir Brian Moffat) I think the playing field is never
dead level but it is a freer market than it ever has been, and
I am quite convinced that the state aids in steel anyway are minimal,
if they exist at all. Having said that, there is no doubt in regions
such as France, as you mentioned, that the French have a greater
affinity to buy French goods than the British to buy British goods.
I just think that is a fact. Whether we like it or not that happens.
You mentioned we bought a business in France, it was to go alongside
our existing rail business. We now have the biggest rail business
in the world and it is a successful business. It is a product
that will travel because although it is an old product in use
terms, in the technology of today it is a very sophisticated product.
We have a switches and crossings business, we have a design consultancy
business and a technology business in rail such that we can provide
a total service to railroad owners worldwide, and do that. It
is an international business in the truest sense.
169. Can I leave it on this then, Sir Brian.
Obviously the loyal workforce out there actually believe they
earned your knighthood but now that Corus has failed them, are
you going to hand your knighthood back?
(Sir Brian Moffat) We have not failed them at all.
We are trying to protect the jobs of 22,000 people in the UK going
forward and we would like to grow but we find it progressively
more difficult to do so. We were able to grow in the UK through
efficiency, through the efforts of our people, in the 1990s but,
unfortunately, the rest of the infrastructure did not grow as
fast as we would have liked. We got a very encouraging start in
the early 1990s from the implants from the Japanese, in particular,
for automotives and we got a big share of that. Today, to come
back to your other point, we have a higher share in our domestic
market than other producer in his domestic market in the EU. We
have got a market share of 52-54 per cent, most of them are ten
per cent below that in their own markets. If we can grow it higher,
we will. We are not satisfied with that level, we want to get
more if we can.
Mr Chope
170. On Any Answers, the BBC radio programme,
at the weekend there was a person from the South of England who
is the boss of a constructional steelwork firm who said that he
was very predisposed to buy Corus British products but he was
now buying Corus products from Holland because they were able
to deliver to the specifications he required and he had not been
getting the quality from the home produced steel. He said it more
out of sorrow than anger. I do not know whether you have got any
comment about that? The other point I want to make is you talked
about the limited scope for help from the Government and you might
be able to save £8 million if the Government abandoned the
Climate Change Levy and you might be able to save £10 million,
you told us in evidence last year, if the government reduced the
level of fuel tax to the same level as it is on the continent.
There is also a role for the Government in dealing with anti-dumping.
I do not know whether you would like to comment on whether you
think the Government has been vigorous enough in dealing with
the problems of anti-dumping. To what extent do you think dumping,
perhaps from the former Soviet Union countries, is affecting your
markets, not just here in the United Kingdom but, for example,
in Northern Europe?
(Sir Brian Moffat) That is a very good question. The
problem that we have got with anti-dumping legislation in Europe—as
you know it is a European initiative, it is not a UK initiative,
you have to prove damage in Europe overall—is that it is
so slow. By the time your case comes up, by the time action is
taken, it can be a minimum of a year to 15 months, by which time
frankly it is too late. That contrasts with the States with something
like 60 days. That is not a definitive answer in the States but
there is a defence mechanism whereby people who are standing accused
of dumping go beyond the 60 days at their risk with all the penalties
that may in due course be imposed, and they have to put bonds
up in front. They cannot get away with it, so that is a real risk.
The problem, for example, which is happening today, as you have
probably heard, is some of the steel industry in the States, as
a result of the downturn in the States, has got into difficulties
with huge amounts of imports, a lot of it from the former Soviet
Union countries and also from other Far Eastern countries, and
they have anti-dumped them. That steel is now looking for a home
and that is what has exacerbated the price decrease that we are
currently experiencing in Europe that started last quarter into
this quarter, and probably going forward another quarter at least.
All governments, whether they are European or American, are very,
very chary, as you will know, of anti-dumping, even if they can
prove it, of the former Soviet Union countries because of the
political sensitivity in that area. Those countries are basically
selling steel as a commodity to get a foreign exchange. It is
not about making profit, it is literally about getting foreign
exchange. It destroys the pricing structure across the industry,
as we know to our cost. That is why the market scene in Europe
is so vicious at the present time. Before this latest spate of
imports, the former Soviet Union countries had penetrated the
overall EU market by the order of 12 per cent over the space of
three to four years. That is quite a significant inroad and, frankly,
it cannot be on competitive grounds, it just cannot be. We know
the industry well enough to say that.
171. So you think the European Union should
be much more vigorous in dealing with this?
(Sir Brian Moffat) Yes, and we use our trade association
and we have a lot of help from the DTI in that area to try to
speed things up. It is difficult because the legislation is not
adequate in terms of the timing that we all want.
172. What about the quality issue that I raised
at the beginning?
(Sir Brian Moffat) I cannot give you an answer specifically
because I do not know. I heard this remark but I do not know exactly.
We do have from time to time, like all manufacturers, complaints
from customers and he may have sourced that out of Holland as
a result of that complaint, I honestly do not know. I can assure
you that we are not proud of that situation when it happens and
we do our best to rescue the scene and satisfy the customer. Our
whole objective is to increase market share in this country, not
encourage people to look elsewhere for steel.
Mr Chope: Thank you.
Helen Southworth
173. Can I ask you about the impact of the euro
and exporting. The IISI figures suggest that your exports held
up in 2000 to the EU despite the sterling:euro rate, is that the
case?
(Sir Brian Moffat) Yes. What we have tried to—
174. Have you been exporting at a loss?
(Sir Brian Moffat) Yes, on every tonne.
175. The euro has begun to climb in the last
two or three months, what impact has that had?
(Sir Brian Moffat) Not a lot because prices have been
decreasing at the same time. If I could just explain, it is not
just a translation effect in currency terms. Steel prices in Europe
follow, and always have followed, the German domestic price and
the deutschemark is now fixed to the euro, so effectively although
the euro, as you have seen, has come down slightly over the last
three to four months, the price effect has overtaken that and
more than negated any increase in the euro. So we have the double
effect of weak pricing accelerating at a greater rate than the
euro is strengthening.
176. How are you able to benefit from having
steel plants inside and outside the eurozone? Are you not ideally
placed to survive currency fluctuations?
(Sir Brian Moffat) In the immediate areas, yes. Logically
the Ijmuiden Plant selling into euroland means most of its costs
other than raw materials, its energy costs, its employment costs,
its infrastructure costs, are incurred in euros and sold in euros
and, indeed, if it exports to dollar markets because of the weakness
it is getting relatively more euros in. The translation of those
profits then into sterling, of course, reduces.
Chairman
177. On the other areas that you have for exports,
you used to export to the US which remains, as I understand it,
a net importer. Have you still got much business there?
(Sir Brian Moffat) It is again specialised business
but we do have it. Basically it is all specialised—the heavy
structurals, there is no heavy structurals producer in the US
and we sell and have arrangements with other structurals producers
to complement their product range there. We sell alloy steels
out of the Sheffield area; engineering steels into North America;
we sell rail into North America and some pretty sophisticated
strip products into North America, most of which you will be familiar
with. Just about any of the Duracell batteries that you handle
from time to time have Corus steel in them because that sort of
steel is not made in the States but it is by us.
178. Have you lost market share in these areas?
(Sir Brian Moffat) In the US?
179. Say in the US, although I know you export
worldwide.
(Sir Brian Moffat) We have, ironically, just been
anti-dumped in the US with other people. We are pretty certain
we have not been anti-dumping given the weakness of the currency
vis-a-vis the dollar, but we have to prove that. We will not stop
exporting as a result of it, even though we have to put a bond
up. That is the sort of disciplinary action that the Americans
can so quickly bring, which brings us back to the point you made
earlier about anti-dumping. I would not say we have lost market
share in the US because basically we are in niche markets, not
commodity markets there.
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