Teesside steel future still uncertain

Feb 22 2010 by Karen McLauchlan, Evening Gazette

AS Corus began the controversial mothballing of Teesside Cast Products this weekend - its single biggest closure since recession wiped 35% off the European steel market - 20,000 British-based workers in the rest of Tata Steel’s European division, including more than 2,000 on Teesside, still faced a fragile future.

Hidden beneath the TCP headline announcement in Corus’ Quarter 3 results last week was a depressing forecast for the remainder of 2010, despite more than $1bn in cost saving at the company and a predicted 13% recovery in worldwide demand.

While Corus achieved a remarkable turnaround - going from a £246m loss maker in the company’s second quarter to a £90m profit taker by December 31 - chief executive Kirby Adams said it was not out of the woods yet.

Of most concern was its steel sections business, based at Scunthorpe, which is heavily reliant on a still severely depressed European construction market; while the fact that long products - of which TCP is a part - was profitable at all was thanks to France, said Mr Adams, which “unlike the British were continuing to spend on their infrastructure”.

Corus plates division was described as “depressed”, while Corus tubes was only just approaching break even.

The next negotiating round for raw material prices will be crucial for steelmakers such as Corus, leaving a question mark over profitability for the remainder of the year.

Mr Adams had a clear message for governments in northern Europe and especially the UK - keep spending.

Both the rate and extent of fiscal stimulus packages would impact on Corus results, he warned. Focus needed to be on rebuilding the economy of the UK “to secure employment of the remainder 20,000 employees”.

Production in Quarter 4 would be slightly less, said Mr Adams, primarily because the mothballing of TCP would take out up to 3m tonnes of slab. Output rates across the company were unlikely to rise above 80% of capacity for the rest of 2010, he said.

“We do not anticipate getting to 100% over the next few quarters.”

The company’s financial performance in Quarter 3 was down to “better mix, better price and lower cost” said Mr Adams. But it could not stand “large and imposed inflationary price increases”.

With a cost push coming from record steel production in China, where demand is likely to reach a record 600m tonnes this year, “the question for most steelmakers is will we get price negotiation or price imposition?” said Mr Adams.

He spoke of a “two-speed recovery” with the developing world growing at a much faster rate than developed countries, where any increase would be constrained by high unemployment, poor public finances and fiscal policy tightening.

He said the severe destocking that had been a feature of Europe and North America last year had finally come to an end, but there was still lagging demand and excess capacity.

The company was seeing some recovery in industrial activity across Europe. Demand from the motor industry had been the first to return on the back of billions of pounds being poured into scrappage schemes.

“The flip side is that the construction markets in Europe remain extremely depressed. It relies heavily on financing that’s not available,” said Mr Adams.

Nevertheless, Tata Steel MD HM Nerurkar confirmed that it was planning to launch a specialist high rise construction division using expertise within Corus.

Kirby Adams joined Corus last spring from Australia’s Blue Scope Steel, a company with which Tata is believed to have already had a joint venture on small building construction.