Select Committee on Welsh Affairs Minutes of Evidence

Examination of Witnesses (Questions 100 - 119)



  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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