Select Committee on Welsh Affairs Minutes of Evidence


Examination of Witnesses (Questions 300 - 319)

WEDNESDAY 2 MAY 2001

SIR BRIAN MOFFAT, MR TONY PEDDER AND MR DAVID JACKSON

Ms Morgan

  300. You have explained in previous evidence to us that one of the problems you face is the cost of transporting steel, especially for export, yet the restructuring you propose appears to involve transporting steel from Teesside down to Llanwern to be finished and then some of that will be sent back to Teesside on a round trip. If the cost of transporting steel is such a problem, why are you adopting a strategy which would involve a possible 600-mile round trip from Teesside to South Wales and back?
  (Sir Brian Moffat) First of all, it would be a minority of steel which went back there. It would be a very small tonnage.

  301. But some would go back.
  (Sir Brian Moffat) Some would go back but a very small tonnage. Teesside have a very significant cost advantage over Llanwern, such that the transport costs can be absorbed well within that cost advantage and the costs we are talking about, internal transportation between Teesside and Llanwern, are very small indeed compared with the costs of moving product from Llanwern into, for example, northern Germany. It is a very significant difference.

  302. Internal transport costs are not significant.
  (Sir Brian Moffat) Are not anywhere near as significant as having to incur transport and rail or shipping costs.

  303. Yes, I understand, obviously because it is a longer distance possibly as well. Is it significant at all in these proposals that this moving around of steel in the UK is involved?
  (Sir Brian Moffat) It is significant in the sense that there is a logistic situation as well as a cost. We have looked at that very carefully and we are still in the process of negotiating that contract. The state of the negotiations we are in at the present time confirms our view that this is a very valid route.

  304. One of the great concerns is that these proposals will eventually lead to the total closure of Llanwern. I wondered whether you could give us a commitment that that is not anywhere in the mind of the company.
  (Sir Brian Moffat) I can assure you that is not in our mind at all. I have said this and all my colleagues say that we cannot guarantee the life of any plant, but equally we set out to maximise the situation and that is what we have done in this case. Teesside is one of the lowest cost producers even today in Europe and Llanwern will get the direct benefit of that. With the plant inherent in Llanwern in the mills, strip mill and so forth, that is why the strip mill at Llanwern has been chosen over the strip mill at Teesside. We think there is a life for Llanwern going forward and we are not talking about closing or contemplating closing the Llanwern plant.

  305. You must understand that there is a certain degree of cynicism because at the time of the merger there was no talk of any closures, was there?
  (Sir Brian Moffat) No, there was not.

  306. So you can understand why there is cynicism about things you do say and obviously this concern about Llanwern is great.
  (Sir Brian Moffat) I understand that and we all understand that and we have to show going forward that the Llanwern situation is totally viable and robust. I hope, providing the UK market does not carry on deteriorating significantly, we can do that, but that is a proviso. We are only as good as our customer base.

Mr Edwards

  307. As a company you told the Trade and Industry Committee that Ebbw Vale was being closed because demand for its narrow product range—packaging materials—was being lost to aluminium and plastics. Did you as a company not anticipate this shift from steel to aluminium and plastic packaging? If so, why was it not possible to diversify production at Ebbw Vale in response to these changes in demand?
  (Mr Jackson) In terms of analysing future market trends, it is something we do consistently, throughout the company, but as Sir Brian has explained, in terms of the balance of operations between our various tin mill facilities, and then we make the decision based on the overall capacity we have in those products. Wherever one can diversify into alternatives, then we would consider appropriately.
  (Sir Brian Moffat) Although we do have an aluminium business we do not make can stock at all. Our packaging business is dedicated to steel and maximising the benefit of that. We are not in the packaging business in any way in aluminium.

Mr Ruane

  308. Although Corus's share price rose after the announcement on 1 February, it has fallen again since then. Does this support the suggestion of the unions (among others), that the restructuring is a short-term solution rather than part of a coherent, long-term plan for the future of Corus?
  (Sir Brian Moffat) No, the restructuring is a long-term plan for Corus. We intend to make Corus viable. The share price has responded positively since the announcements earlier in the year—I go back as far as the initial one in December. The share price does fluctuate as the rest of the market has in recent times.

  309. How much has it gone down since 1 February?
  (Sir Brian Moffat) I cannot tell you. It is 71 today but I cannot remember what it was on 1 February.

  310. Can any of your colleagues help?
  (Sir Brian Moffat) No, not at 1 February specifically. I could look it up and tell you, if you do not know.[4]

Chairman

  311. Any idea roughly?
  (Sir Brian Moffat) It peaked recently at 75 but I cannot tell you what it was on 1 February.

Mr Ruane

  312. Have you been seen to have done enough? Have you been successful?
  (Sir Brian Moffat) We are not happy with our share price, if that is what you mean. I do not think many people are today, but that is the market.

  313. Is that a reflection of how you have handled the situation?
  (Sir Brian Moffat) It is a reflection of what our shareholders or potential shareholders think of Corus vis-a"-vis other companies. The industrial sector in this country now has taken a hammering on share price.

  314. Would you say that the stock market would say you have not done a proper job?
  (Sir Brian Moffat) With our results we cannot be very proud of that situation, can we? They are appalling results.

Mr Smith

  315. So you would not recommend to redundant steel workers that they invest any of their redundancy in Corus shares?
  (Sir Brian Moffat) It is not my position to recommend shares. There is a law against doing that.

Mrs Williams

  316. May I go back to the unions' document. The unions are suggesting that EU steel consumption is growing and is forecast to continue growing. In recent weeks, however, US manufacturers have announced price increases since 1 April of between $10 and $32 per tonne for some steel products. Why is Corus taking measures to restrict supply at a time when demand is growing and prices appear to be increasing?
  (Sir Brian Moffat) Demand is not growing.

  317. Are you saying that this is factually incorrect?
  (Sir Brian Moffat) Yes, I am saying that this is factually incorrect. Demand is pretty static and the concern you will read about in the newspapers is whether it will start to decrease significantly. In the meantime there is more stock in the system than people can cope with, so all producers, no matter where they are, are cutting back on production. That goes for the developed world, for the US, for Europe, for the UK and for Japan and Korea. There is too much supply in the system and we are trying to bring supply more in line with demand and the demand outlook is shaky. You only have to look at the recent figures announced in the press this morning and yesterday about the growth factor in the UK, that the GDP in the first quarter in this country only grew 0.3 per cent in the first quarter, to see the significance of that on demand.

Mr Paterson

  318. The Chartered Institute of Purchase and Supply published their UK purchasing managers' index yesterday, showing that manufacturing contracted for the second month running, PMI was decreasing, outlook was decreasing, new orders decreasing, quantity purchased decreasing, employment decreasing. That is two months looking bleak. What is your forecast for your market for the next six months?
  (Sir Brian Moffat) Pretty flat at best.

  319. But not actually decreasing further.
  (Sir Brian Moffat) I hope not but it is pretty flat at best. I do not want to be the voice trying to talk the market down, but there is no upside, put it that way. If there is anything, it is a downside to a flat situation. The chances are it will be down rather than up off a flat demand scene.


4   See page 56. Back


 
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