Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 40 - 59)

MONDAY 6 NOVEMBER 2000

MR PETER SIDDALL, MR TONY PEDDER, MR TONY BAGSHAWE AND MR DAVID REA

  40. Do you favour the kind of instant response that the American mechanisms seem to afford where you are given a fair trial and shot afterwards, or maybe shot first?
  (Mr Pedder) I prefer shot first, Chairman. I think the Americans seem to be at the other extreme. I have to say, given the damage that can be done to our market very, very quickly, I think you have to err that way rather than the other. The Americans take it to excesses and I think their greatest marketing tool is to bring anti-dumping measures. I think somewhere between these two extremes is where we want to be.

Mr Morgan

  41. In your submission to the Committee you point out that over the past ten years steel consumption by industry in the UK has fallen by ten per cent, yet at the same time we have statistics for Germany and France which show significant increases. You say also that total UK consumption, if you include end products, has increased. Can you say why that is? Is it just that all the things we used to produce like washing machines, cars, etc., a large number of them are made elsewhere and we import them in manufactured form rather than products to industry or are there other factors at work?
  (Mr Siddall) That is certainly very true. Steel in imported goods is now the biggest source of steel coming into the UK. 38 per cent of steel coming into the UK is in imported goods, many of those previously were made in this country.
  (Mr Bagshawe) If I may just add to that, a lot of our customers are component suppliers into the motor industry and other engineering operations in the UK. Our customers are losing their business now to overseas. It is not just the washing machines and the cars which are coming in, it is the components that go into those cars and go into those washing machines which are also now subject to an awful lot of competition, an awful lot of price pressure. Those are being imported now as well.

  42. You would think the same factor would be affecting countries like France and Germany, or does it just come back to the currency again?
  (Mr Siddall) The way the euro has weakened has certainly enabled countries like France and Germany to be more and more competitive when sending goods into the UK.

  43. We are looking at ten year figures here and unless this change has happened in the last year or so, why has the consumption of steel in Germany and France gone up and that in the UK down?
  (Mr Rea) You would see the same sort of pattern even more vividly in the stainless steel statistics. It is about the manufacturing base and whether that is growing or not. What you see in the UK is the steady migration of manufacturing out of here offshore. In the last year or two that has been rapidly escalating. We could show you some numbers again, and submit evidence afterwards. Stainless steel is one excellent example where consumption per capita is tied very much to the intensity of manufacturing in that particular country.

  44. You say later on, it is related to this, the loss of critical mass in some areas of manufacturing threatens to undermine our ability to compete. Can you say what you mean by critical mass exactly in this context?
  (Mr Rea) Our standard view on that is that you need a wide product range as a manufacturing sector or groups within a manufacturing sector need to be able to supply across the product range. This applies particularly to us in steel but I am sure it does in downstream manufacturing as well. When you have a name and a reputation you supply a product range then you command a certain size of the market. Once you start to withdraw from particular products, or once you are not in a particular line of manufacturing, then you find that foreign competition, or competition from bigger groups, is better able to supply right across the market. Therefore, from our point of view we look at a UK manufacturing base that needs to supply a broad range of products in a broad range of materials and to have the workforce and academics and research and development behind that which all makes it a profitable business. Once you get below a certain size, and it might be arguable exactly what the certain size might be on that, as you do shrink down you find it far harder to compete when people are looking for a range of products.

  45. Are there particular parts of manufacturing you had in mind when you made that remark?
  (Mr Rea) Automotive has to be the first stopping point in any major part of manufacturing. With any major capital goods of that sort you have to have a product range and you have to have a basis from which you are coming with new models, new varieties, whatever it might be.
  (Mr Siddall) For instance, in my own company we do not make any finished products, we make components that go into certain niches. If those niches that we go into shrink by other companies moving into Europe, obviously that makes things extremely difficult for my own organisation.

Mr Hoyle

  46. Mr Pedder, I think Corus is the topic I would like to take up with you. Obviously I presume you are still celebrating from the good news of all this extra money being spent by Railtrack on new lines. I just wonder, following that announcement, will we see a reversal of the redundancies that have been proposed for Workington with the new contracts and new orders that will be coming in? Also, what guarantees have you made with Railtrack about the production of lines being made in the UK?
  (Mr Pedder) The discussions with Railtrack about what their current renewal programme is going to look like are still ongoing. We have a contract with Railtrack which is for about 60-70 per cent of their requirements in the UK, that is for five years. That is a contract that they look like placing for in total about 100,000 tonnes of rail a year with all their suppliers over the next five years. So far the impression we have of the renewal programme they are talking about is something of the order of 200 miles which will be around 40,000 tonnes of rail. We will be able to accommodate their needs and we will be talking to them very actively about what those are from our rail supply and we will be adjusting our production accordingly. It is early to say what that will mean specifically.

  47. I think you missed part of my question. Will that work go to Workington or not?
  (Mr Pedder) As I say, that is to be decided. We will discuss that with Railtrack, it will depend on what they specifically want in terms of rail lengths, delivery programmes. All of that will be discussed with them in the near future. I cannot give you a specific answer today.

  48. Have you given a guarantee that there will be rail production in the UK with Railtrack?
  (Mr Pedder) We will be able to meet their needs when they have decided what those needs are, and I do not think that will be a problem.

  49. So I take that as no, or do I take it as yes? I will let you decide. It would be easier for both of us if it was yes or no.
  (Mr Pedder) When we know what they require in terms of quality, specs, delivery time, we will work out a programme with them and we will meet their needs. Where those needs are met from we will decide once we know the detail.

  50. I will make it easier for you. At this stage have you given a guarantee that there will be a production of lines in the United Kingdom? Yes or no?
  (Mr Pedder) I am not aware that we have given a guarantee but we will be able to meet the needs of Railtrack, I am pretty certain, depending on what their specific needs are when they are finally given to us.

  51. From abroad if need be?
  (Mr Pedder) If need be.

Chairman

  52. If Railtrack were to say to you "we want it made in Britain", would they be able to do that? That is question one. Secondly, would you have the capability if the lines were what you were talking about?
  (Mr Pedder) I would need to look specifically at what that means in terms of timing of rollings and specific qualities, but if that was what they were to say to us I would be very surprised if we could not meet that need. We need to see the details. I am not trying to duck the question.

  53. It is a problem that you would like to be able to resolve?
  (Mr Pedder) We would love to supply them.

Mr Hoyle

  54. Obviously the UK taxpayer has put a lot of money into ensuring that the standards of Railtrack are brought up and we are seeing new lines being put in there. I think it would be an embarrassment both to yourselves and the UK Government if we were to find that production was coming from abroad. I am sure you will take that on board. The EU have told us that the importing of steel used by Railtrack has already happened since early this year when Corus won the £120 million contract over a five year period. Is it true that some of that work is going to a subsidiary in France? Is not all new track of long rail production going to come out of France as you have not got any at Workington?
  (Mr Pedder) If the need is to supply long rail then that rail will come out of France. If there is the ability to supply the track in shorter lengths and weld then the supply from the UK is easier. Bear in mind that not all of Railtrack's needs come from Corus anyway, they purchase rail from suppliers other than us.

  55. But you have got about 70 per cent of that?
  (Mr Pedder) Between 60 and 70, yes.

  56. That is a fair crack of the whip, it does not leave much for all of your other competitors to share out, does it? In fairness, you are the biggest supplier.
  (Mr Pedder) I think it is far more than we would like our competitors to have.

  Mr Hoyle: If you went to France people might not agree with you, we think UK jobs are important.

Chairman

  57. Can you explain about the rail lengths business because I am not very clear. There is something about the VIC 60.
  (Mr Pedder) I am not an expert on rail, I would have to come back to you on it. We are happy to do that.

  58. I do not want to trip you up, I know it is not your specialist subject. In the course of the last two weeks since we have discussed the meeting today—
  (Mr Pedder) We have length constraint on our Workington mill and that is what is being referred to here.

  Chairman: We will come back to that in written or oral form.

Mr Morgan

  59. This kind of long rail, is this something that is new within the British railway system or is this something that has been used for some time? Is the reason that the French plant is able to provide it because obviously there has been investment there and they are able to produce that kind of rail and there has not been the equivalent investment in Workington?
  (Mr Pedder) I think, again, I would need to come back to you on the specifics of that. There have been different lengths of rail produced by different producers around the world according to the needs of their major customers and what has been specified. That has not been a pressure on us until quite recently as far as Corus is concerned.


 
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