Examination of Witnesses (Questions 140
- 151)
WEDNESDAY 4 FEBRUARY 2004
CORUS
Q140 Mr Evans: Looking at the written
submission that you have put in, page 12, appendix 1, you go through
a list of some of the recent projects that you have done. It is
very impressive by the looks of it, from New York to Beijing,
to Singapore and then there are some domestic ones as well. Could
you say as far as these particular ones are concerned, where was
the steel used in these projects sourced from?
Mr Pettifor: Well, if I could
maybe take you through them. The structural steel at Wembley Stadium,
that will come out of the east coast plants, which are rolled
sections. There are doubtless some tubulars in that stadium and
although the tubes will be made in England the steel will originate
in Wales because it will be a coil based project. The World Trade
Centre, they are structural sections which will be out of Scunthorpe
and Teeside. If we look at the cladding and roofing system for
the Grand Theatre in Beijing, that is in fact aluminium and that
is an aluminium roofing system and at the moment that aluminium
comes out of our rolling mill in Koblenz, Germany, and that is
a very, very successful system which helps with all of our building
solutions because we can supply the total package. London Underground,
that is coming under Railtrack, which is coming out of Workington
in the North East and the steel for that is made in Teeside, Scunthorpe.
The modular platform development, that is quite an interesting
development where we can build platform extensions very, very
quickly and they are using galvanised rolled steel forms and that
galvanised steel has all come out of the Welsh plants. The body
panels for London black cabs, that is all out of Wales. The Singapore
Rapid Transport System, the rails have traditionally come out
of Workington in that system for the last 30 or 40 years. It also
involves some structurals for stations and so on and support systems
and they have come out of Scunthorpe, Teeside, and there are some
tubulars which in the past had come out of our Lackenby plant
on Teeside but in the future will come out of Wales. If you look
at the Millennium Centre and the Stadium in Cardiff, again that
steel has been made in Wales into tubes and cladding has come
from our color coat business in North Wales.
Q141 Mr Evans: Did you do the Scottish
Parliament as well?
Mr Pettifor: Well, personally,
no.
Q142 Mr Evans: There is no steel
from Corus used in that project whatsoever?
Mr Pettifor: Well, to be honest,
I just cannot tell you. I would be surprised if it is not, very
surprised. We occasionally lose a few projects as well, mind you.
There is only one football stadium which we have not built and
that is Middlesbrough Football Club, but that is the only football
stadium which has not been made with steel that has been rolled
in the UK.
Chairman: Perhaps we will not go into
the new Welsh Assembly building!
Mr Evans: I was not going to mention
that.
Chairman: I am glad you did not!
Q143 Mr Caton: How do you envisage
Corus' Western European operations looking in say 20 years' time?
Will you just be working with niche and high value products?
Mr Pettifor: Well, telling the
truth is always difficult, is it not, but I will be surprised
if the answer to that is yes, because we make so much steel it
would be very difficult, it would be an extremely large niche.
I think what will certainly be true is that in 20 years' time
the steels will all be different steels from the steels we make
today and that is a continuous change. People do not realise what
a new product industry this is in terms of higher strength steel.
If it was automotive, automotive will be almost exclusively high
strength steels by then and probably a greater mix of materials
than now, but I do not think anybody believes that mass car manufacture
will not be based on a steel platform. It will be small volume
production which will be on aluminium or possibly all stainless
again, not quite on the DeLorean scale but stainless has certain
advantages as well in small car production. In terms of what our
facilities will look like, I would be very surprised if we are
not still operating glass furnaces. The world will not go to electric
arcs. One of the interesting dynamics which is taking place at
the moment is that there seems to be a structural change in the
world market to scrap and suddenly the world is becoming a little
bit short of scrap and so scrap prices are at all time record
highs. There is a good, sound, logical reason for that and that
is that all steel that is made takes about 20 years on average
before it appears in the chain to be recycled. So if you look
at the amount of steel that is made today there was a significantly
smaller amount made 20 years ago. So inevitably as a percentage
of new steel being made the percentage of scrap has got to decrease.
The only thing that has stopped this from happening in the past
has been the massive amount of scrap that is in the former Soviet
Union. Other industrialised countries like the UK, Germany, France
and the US, which are really the major scrap supplying countries
worldwide now—there is a tremendous amount of scrap exported
from the UK into China, Turkey and so on. So I do not believe
there will be any significant growth in electric arc furnaces.
I think there may be some novel processes in the terms of production
of iron oxides and iron ores, one of which we are looking at very
seriously, which we are developing ourselves and which, as you
might expect, I am not going to tell you about. There will be
some breaks in the processes in the next 20 years but these processes
take a long while to become accepted in this industry and to become
a real commercial scale. So a long answer but we will still be
making quite a number of commodity products.
Q144 Mr Caton: Thank you and it was
very interesting, but essentially you are saying volume steel
production will continue in Western Europe?
Mr Pettifor: Yes, but it will
almost certainly be 100% dependent on imported coal and imported
iron ore and so increasingly the only sites that will survive
will be those that are on the coast.
Q145 Mr Caton: To follow that up,
do you foresee Corus actually investing in other parts of the
world where steel production will be basically cheaper?
Mr Pettifor: Well, that is a possibility
going forwards and there is no surprise that when we were looking
at merging with CSN one of the rationales behind that was that
the cost of making a trial in Brazil is a so much lower cost than
it is in Western Europe. One of the reasons for that, of course,
was that it had iron ore and only yesterday I was reading some
numbers were remarkably accurate, that iron ore into the CSN plant
in Brazil is about $5 a tonne, when it is $30 delivered into Port
Talbot. So if you are using 1.6 tonnes of this stuff to make a
tonne of iron you can see that there is a big differential. It
is not just labour cost.
Q146 Mr Caton: Do you see any other
parts of the world where the same economic incentive applies?
Mr Pettifor: Russian, the Ukraine.
There is a lot of coal and a lot of iron ore in Russian and the
Ukraine, so they could be in a very, very strong position. A lot
of semi-finished products in the last few years anyway have come
out of plants in Russia. There is plenty of scope for expanding
that industry and I think if you look at maybe the strategy of
one of our competitors it is quite clear that they are looking
at investing in Brazil and closing inland plants. Of course the
amount of steel we make depends very much—we are back to
this question of the exchange rate again—we have two flat
work products, rolling mills in the UK. We do not have enough
steel to feed both of them, we do not have the market to feed
their steel to against the background of current exchange rates.
If exchange rates were to move significantly it would have such
an effect on profitability that we could buy slab in and roll
a lot more volume through Llanwern.
Mr Caton: Thank you very much.
Q147 Chairman: In your written submission,
Mr Pettifor, you argued that the UK is better at research and
development, which is probably true, but why do you think it is
particularly in your industry?
Mr Pettifor: Well, I think I am
saying this unfairly. You look at any industry and you can find
some classic examples. Some of it is pure management will to accept
risk, for example the electric arc process for long products which
involves casting where you cast a product which looks almost like
a beam so you have very little rolling work to do. That was in
fact developed in Sheffield in 1963 and British Steel or one of
its predecessors was rolling mills in fact in 1963 and that technology
was basically given away to S&S in Germany, who some 20 or
30 years later finally found a use for it in North America and
then it has come back to Europe again in both the Saltzketer plants
in Germany and in Arden. So everyone can find a horror story of
why this happens. I think it is also a matter of funding as well,
what funding is available to develop novel processes because the
industrialisation of them is very expensive and it is very expensive
to go it alone, even when you have got a very good project. These
days it is quite difficult to do that. So funding is a big issue
and I would not like to think that big companies because they
are big can necessarily fund the right amount of R&D because
they cannot. They are no different from small companies. They
can maybe do it in a different way but it does go back, I think,
to the funding issue.
Q148 Chairman: Is there any way the
Government could help in that situation?
Mr Pettifor: Well, I think I heard
in the previous session a comment about tax credits for R&D
and how they work. We spend some £50 million a year on R&D
but because we do not make any money of course we get no credit
for this in financial terms. Clearly, I would have thought that
one of the things that was important even if a company is going
through losses over a period of time technology is one of the
ways it is eventually going to recover, changing its technological
base. So any assistance that can be given to help with this would
be quite useful. So if we could take this as a cash credit in
the way the SMEs can take it as a cash credit then that would
be a great help to us in the situation that we have been in. We
certainly get better value for R&D with some of our continental
operations. For every euro we spend in a research centre in which
we have a share in Belgium we get that levered about six times,
which of course makes you think about where you are going to do
the work. UK researchers themselves tend to be much less expensive
and the quality of work is certainly as good as anything in continental
Europe but there is a leverage issue here because of the amount
of funding that governments are prepared to put into R&D centres.
Q149 Mr Edwards: Could I ask you
about your links with universities. What sort of programmes have
you developed with the universities, how satisfied are you and
what do you get out of it?
Dr Carr: We have a number of links
at a number of different levels. Clearly, if we start at the basic
undergraduate level, we have sponsorship programmes running in
just about every business across the UK through many, many universities.
Typically, many of those are in South Wales. That would be at
the undergraduate level. We then support MSc studies for vocational
work with universities where we go towards MScs in technology.
The third area we then support as well is, particularly with Welsh
universities, we have an engineering doctorate scheme which is
actually in its tenth anniversary this year where over the period
of ten years and latterly with some other partners in industry
we sponsored 10 PhD students a year with the objective of (i)
developing our technology, particularly focused on our product
technology I have to say in this case, but (ii) developing a future
crop of technologists to take into the business and I think that
has been highly successful for us. So our academic links operate
on many, many levels and across many, many areas.
Q150 Mr Caton: What is the current
position with regard to US trade tariffs on steel and what effect
have they had on Corus' profits?
Mr Pettifor: Well, section 201
was a blow to us. It did not affect South Wales at all in reality
because we were not exporting to North America there. It affected
our engineering steels business. The main business it affected
was our business in Arden, Holland, where we lost something like
300,000 tonnes of exports. Fortunately, we were able to place
those somewhere else. So you could argue that there was a financial
loss but it maybe was not as great as you might have expected.
Probably the greatest financial loss was to people in the US because
some of the steels themselves they could not make themselves and
so it has been a major issue in some of the US manufacturing.
That is one of the areas where I think the industry and Her Majesty's
Government and the European Parliament and the European Trade
Association actually worked very well together, where everybody
was on the same piece of paper, everybody knew what the issues
were and we did not finish up in the position that we started.
There was quite a number of exclusions that were negotiated by
the Government for us, which was very helpful.
Q151 Mr Caton: So you do not feel
the Government could have done any more?
Mr Pettifor: No, I think it was
an issue that was there and George Bush was going to do what he
was going to do come what may and there were other issues that
were forcing him down that track whatever the Government did and
that is how it is. I think you have got to recognise that, as
a Washington lawyer told me, if anybody in the US steel industry
has got a choice between spending $70 million on a rolling mill
or spending $7 million on a gang of lawyers to put a dumping case
on the Europeans you will always win on a dumping case and most
of the dumping cases that have taken place in the US since the
war have been on steel. That is why prices in the US have traditionally
been considerably higher than the rest of the world.
Mr Caton: Thank you very much.
Chairman: No further questions. Thank
you very much, Mr Pettifor.
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