Select Committee on Trade and Industry Appendices to the Minutes of Evidence


Supplementary memorandum submitted by Corus Group plc

  Q1.  Following references to declining demand from the UK vehicle industry, it would be helpful to have a note on the effects of each of the recent Ford, Vauxhall and Nissan decisions in terms of approximate past and projected future sales:

  A1.  Of all Corus' automotive flat-rolled product sales, 60 per cent is sold indirectly through subcontractors or distributors and 40 per cent directly to automotive companies.

  Corus' direct sales to Ford, Vauxhall and Nissan in the UK in 2001 will be circa 200k tonnes. Corus would hope to increase this tonnage as a result of an improvement in UK market share and as a direct result of Nissan's decision to build the Micra in Sunderland.

  Ford's announcement did not include the closure of the Dagenham press shop which is the primary direct point of sale for Corus products. The situation on direct supply therefore remains stable.

  Vauxhall's decision to cease production at Luton had no direct sales impact as they assemble only and do not purchase Corus products directly.

  However, all three announcements do have a significant adverse impact on the underlying UK demand for Corus' products from component producers and distributors. In the case of Vauxhall and Ford—reduced UK car build will have impacts on Tier one and Tier two UK suppliers and on the UK component manufacturing infrastructure. In the case of Nissan—whilst they are increasing car build they have clearly stated their intent to either source components from Mainland Europe or to source in the UK based on Euro pricing.

  Annex 1 illustrates the underlying changes in the UK steel market over the last 30 years, in particular it shows the growth of steel in the form of imported manufactured goods which now represent the largest portion of UK steel demand.

  Annex 2 demonstrates that whilst car production is steady or inceasing in the UK, when the "assembly kits" are excluded the underlying trend, which impacts on UK steel demand, is reducing.

  Q2.  It would be helpful to have a note on the requests for rates reductions referred to:

  A2.  There are three major points:

    (1)  five-yearly rate reviews, appeals and the timescale to complete.

  The setting of rateable values, the appeal process and the timescales involved have had a detrimental effect on Corus' competitive position over the last 11 years. This is demonstrated by the following sequence of events:

    —  In 1990 the rateable value was assessed at £100 million for Corus' four integrated works (Port Talbot, Llanwern, Scunthorpe and Teesside).

    —  Corus has subsequently appealed and it is likely that a reduction will be agreed which will re-assess the four sites at £73 million.

    —  The appeal with respect to Llanwern was agreed in February 2000, Teesside in January 2001, Port Talbot is anticipated in March 2001. Scunthorpe is agreed.

    —  The process has taken 11 years and has had a significant cash flow impact on the business.

    —  Following the 1995 revaluation, Corus has again exercised its right to appeal. It is believed that this will result in further repayments covering the period 1995 to 2000.

    —  The 1995 appeal cannot be completed until all elements of the 1990 appeal have been finally settled.

    —  The 2000 revaluation is under appeal and is as yet unresolved.

  Corus would like to see the following:

    —  A more realistic initial assessment.

    —  An accelerated appeal process.

    (2)  Inconsistent implementation of the 2000 rates revaluation across England and Wales.

    Following Corus' 2000 assessment, the different approaches in the level of uniform business rate and the transitional arrangements for England and Wales have adversely affected the competitiveness of Corus' Welsh operations compared with those in England.

    In the case of Wales, the rates payable following the 2000 assessment were increased in full immediately, whereas in England there has been a phased approach.

    (3)  International comparisons

    Comparing Corus' UK and Netherlands operations, there is a wide differential between them in property taxation. For example, Port Talbot and Llanwern together currently pay circa £15 million pa in rates whilst in IJmuiden, which has the capability to produce a comparable volume, the property tax burden is circa £1.5 million.

  Whilst recognising that the true comparison should show the total business burden, the UK system impacts on the fixed operating costs and cashflow and hence has a much more distortive impact on investment decisons and international competitiveness.

  Q3.  The Committee was offered information on the £300 million investment programme recently announced:

  A3.  Corus has not announced an investment programme, but indicated that the capital investment programme going forward would be of the order of £300 million per annum. Details of current investment on an historical basis are set out in the Annual Report and Accounts. In addition, announcements are made about investments on an on-going basis.

  Announcements made so far this year include:

    —  £6 million to enhance the product range at Brinsworth narrow strip mill.

    —  £9 million to improve steel quality and increase product range at Scunthorpe's continuous caster.

    —  £3 million to improve steel cleanliness at Teesside Cast Products.

  Q4.  Details on:

    (a)  the loss of specific markets in Northern Europe to FSU steel suppliers.

    (b)  the level of imports into the UK of Corus steel products from the continent.

  A4  (a) Annex 3 shows EU imports from the main non-EU supplying regions over the last 10 years (within the Corus carbon steel product range).

  The EU steel market is completely open and is attracting increasing volumes of third country imports. Ten years ago, EU steel imports of products in the Corus range totalled some 8mt; that figure today is nearly 20mt. Much of the growth in imports has been from the former Soviet bloc. Imports from Eastern Europe/CIS now make up about half the total imports into the EU and have been around 10mt per year in each of the last three years. They are likely to be the highest ever in 2000.

  The focus of these imports has been in the commodity part of the market, particularly plates and hot rolled coil (especially for tubemaking). Indirectly, these countries have also supplied large quantities of very low priced coil and semi-finished products for further conversion in countries like Turkey, who have consequently been able to develop significant market shares in tubes (in the Corus range) and in reinforcing bar (not in the Corus range, but sill important).

  Imports from Asia have also increased in the last three years—peaking in 1998 at 4mt and likely to be around 3.5mt in 2000. Prior to 1998 Asian imports accounted for less than half a million tonnes in the EU market.

  One consequence of increased competition in the commodity part of the range has been to force Asian producers towards added value products like cold reduced and galvanised.

  (b)  Annex 4 shows UK imports from the main supplying regions over the last 10 years (again in the Corus carbon steel product range).

  Total imports into the UK have also grown over the last 10 years, driven in particular by increased imports from Asia and from Eastern Europe/CIS. However, imports from other EU member states have been relatively constant over the last four years and have remained at around 4.3mt.

2 March 2001

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