Examination of Witnesses (Questions 100
- 119)
THURSDAY 1 MARCH 2001
SIR BRIAN
MOFFAT, MR
TONY PEDDER
AND MR
DAVID JACKSON
100. You do not have the figures with you?
(Sir Brian Moffat) I do not have them immediately
but I can give you them. [5]
Mr Edwards
101. If Britain did join the euro in the next
five years, how do you think that would change things for you?
(Sir Brian Moffat) It would depend very much at what
rate we went in. If we went in at today's rate, it would exacerbate
the problem, I would suggest.
102. What is your own personal view about whether
we should or not?
(Sir Brian Moffat) Ideally, in our business, given
that prices are in euros, given that 80 per cent of our market,
including the United Kingdom, is in the E.U., it would be logical
that we join, but not at any price.
Mr Smith
103. Is it possible to get a prioritisation
of the problems your company faces? You led quite convincingly
by saying that it is primarily a problem of decline in domestic
demand. You then mentioned the exchange rate and hard pricing.
Could you prioritise those?
(Sir Brian Moffat) The fundamental thing is the market
and the one thing that over the last two years has been aggravating
that market scene more and more is the euro.
104. That is the primary—?
(Sir Brian Moffat) No. The prime thing is the size
of the United Kingdom market. Steel is expensive to transport,
as you know. We are remote from the market because of the geography
in terms of having to go across the Channel. It costs a lot of
money to do that and, with the thin margins on steel because of
the competitive scene, the transport costs, coupled with the exchange
rate, totally eradicate any possibility of making a margin on
basic, flat products.
105. That is very interesting because we have
evidence in front of us which suggests that, within the last year,
presentations were given by your company—I realise that
you were not in the position you are in now then—about the
vulnerability especially of plants in Wales and the problems your
company were facing in terms of lack of profitability; but no
reference whatsoever then was made as regards domestic demand.
The only references made in two very high profile presentations
of leading politicians in Wales was the strength of the sterling
and hard pricing. Can you explain why that might have changed?
(Sir Brian Moffat) I am not sure what you are talking
about. If you look at my reports to the shareholders during the
course of last year, which are on record, you will find that I
made reference to the market scene.
106. It was an omission on their part?
(Sir Brian Moffat) I am not saying they did not but
I can tell you what I said which was about the market situation.
107. What I am trying to establish is whether
your predecessors were incompetent and were unaware of this lack
of demand being a major factor or whether the market situation
has deteriorated in terms of domestic demand and that now, as
you have just said, has become a more important factor. Which
is the explanation, in your opinion?
(Sir Brian Moffat) They were aware of the deteriorating
market situation and indeed to my certain knowledge had pointed
that out both to government and to visiting Members of Parliament
to plants during the course of last year and said, as a result
of that situation coupled with the exchange rates, plants in south
Wales were becoming more vulnerable.
108. The market situation has not changed in
the last 12 months?
(Sir Brian Moffat) The market situation has got worse
in the last 12 months. As I said earlier, prices have been eroded
significantly over the last six to nine months.
Mr Paterson
109. The Treaty of Amsterdam, Articles 118 and
123, requires us to enter the euro at DM2.95 to the pound. That
would have put you 45 pfennigs wrong on your ideal price of DM2.50.
Entering the euro would not have helped you on the sale side.
What about the purchasing side? How much of your inputs are bought
in dollars?
(Sir Brian Moffat) All our raw materials—i.e.,
coal and iron ore—are bought in dollars and that is about
28 per cent of our cost base.
110. If we had gone in at 2.95, you would still
have been wrong on selling; you would have had a European rate
of interest; it is estimated that we might have had $1.30 exchange
rate. What would that have done to your purchasing bills?
(Sir Brian Moffat) Our purchasing bills against what?
The euro or the pound?
111. If you had a dollar rate of $1.30, what
would that have done?
(Sir Brian Moffat) A dollar rate of $1.30 would have
increased our purchase costs.
112. Exactly, so entering the euro would not
have helped you. Talking about the euro is actually a red herring.
It is a demand problem that you have.
(Sir Brian Moffat) It is a demand problem that we
have but equally it is not altogether a red herring because the
steel prices are made following the German domestic price in euros
and then translated at the rate ruling to give the domestic price.
113. If we had entered and we had signed up
to the Treaty of Amsterdam, you would have been locked in?
(Sir Brian Moffat) We would have been locked in at
that price. It would have been difficult in the extreme. You are
quite right.
114. You would have been hit very badly on purchasing
as well?
(Sir Brian Moffat) Correct.
Mr Llwyd
115. I have an article here from Brad Norrington,
the industrial editor of The Sydney Morning Herald, dated
14 February 2001. It refers to the 2.8 billion steel plants creating
20,000 jobs to which I referred earlier on and it says, interestingly
enough, "Consortium partners in the old steel mill including
the multinational project operator Corus Group PLC plan to build
... and the financial backer is the Industrial Bank of Japan."
Is that fantasy?
(Sir Brian Moffat) We have not and do not intend to
make any investment in any mill in Australia.
116. You are not a consortium partner and that
is absolutely wrong?
(Sir Brian Moffat) No. We have consultants working
with the people, being paid as consultants for advice about that
mill.
Mr Ruane
117. How does the productivity of your Welsh
workforce compare with the counterparts in the Netherlands and
France? Can you express that perhaps in minutes taken to produce
one tonne of steel?
(Sir Brian Moffat) I would say it is very comparable.
118. Have you the exact figures?
(Sir Brian Moffat) No, but it is very comparable.
They are as good as most people are in Europe.
119. Are they better?
(Sir Brian Moffat) In some instances, they may be.
5 See page 35. Back
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