Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 160 - 179)



  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.


  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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