Memorandum submitted by UK Steel Association
Current economic policies are severely reducing
steel companies' strategic options in the UK. The critical mass
in competitive manufacturing, which is steel's UK customer base,
seems to be slipping away. With ROCE at less than the rare of
interest paid by the bank, UK outlook for most steel companies
In essence they must do all that they can to
protect their assets here for better times ahead. Unfortunately
that could mean further retrenchment and consolidation to drive
costs out of the system.
Investment overseas (with open access to the
UK market) is more attractive currently than taking on the burden
of extra costs due to the sterling/euro exchange rate and the
likes of the climate change levy, the business supplementary rate
and UK electricity and gas prices.
Nonetheless steel companies are doing all they
can in areas where they do have some control. They are continuing
to invest heavily in raising employees' skills (£65 million
a year). They are using e-commerce to improve efficiencies and
extending research and development to add value to their product
offering to customers. In this way they have been able to maintain
a level of exports albeit some 5 per cent down on last year's
Metals industry competitive enterprise
The industry is fully committed to this recently
launched initiative, part sponsored by the Department of Trade
and Industry, to radically improve performance in delivery on
time, minimising waste and ensuring consistent product conformity.
A team of "metals industry master engineers"
is working with individual companies to introduce process improvement
techniques and spark a change in attitude of mind, and with it
an ability to adapt behaviour to build world best manufacturing
practices all the way through the UK steel supply chain. This
£3 million programme, 50 per cent sponsored by the DTI, is
now completing the first-year pilot phase, of a total five-year
The steel industry was the first sector to survey
its use of e-commerce under the DTI scheme which is due to be
completed over the next three years. With monthly sales well in
excess of £750 million, the sector has massive potential
for the use of e-business.
The steel sector is characterised by many long
and complex supply chains. According to the study these offer
a broad range of opportunities and challenges to create value
through the use of e-business. Adopting the new technologies will
increase value within companies and also in the linkages between
the companies in the supply chain. The study showed that UK steel
sector sales using traditional Electronic Data Interchange are
expected to grow from the current £110 million a month to
some £250 million over the next two years.
A broad cross-section of steel related industry
sectors were covered in the study, including scrap suppliers,
steel makers, stockists, steel processors/transformers, engineers,
architects, designers and end-use steel consumers.
Overall the UK steel sector does not appear
to be lagging behind other UK B2B sectors in its take-up of e-business,
but anecdotal evidence suggests that it is slightly lagging behind
the steel sectors in other key countries such as the USA and Germany.
Research and development
Globalisation and consolidation amongst steel's
customers are also affecting the UK steel industry's approach
to research and development. Major international customers are
seeking steel suppliers with the critical mass capable of jointly
developing new materials applications. So steel companies' research
is creating opportunities for greater customer involvement in
the actual manufacturing process to ensure maximum exploitation
of the material's properties.
At the same time, to access new perspectives
and thinking that challenges the industry's preconceptions, steel
continues to sponsor work across the leading academic institutions
in the materials sciences.
In some other countries, The Netherlands in
particular, we have seen the creation of national centres of excellence
in the field of metals research. Given the rather fragmented nature
of the existing resource, a study has been proposed to examine
the benefits that might accrue to the UK from such a centre whose
role would be to act as a "technology navigator.
This combination of internal and external research
resource should provide the incremental improvements in processes
and materials applications that ensure short-term competitiveness
and the longer-term horizons for a steel industry that is adding
further knowledge intensity to its processes, products and customer
Steel has always been a knowledge-based industry,
long before the term became fashionable and was mistakenly thought
to apply exclusively to dot.com companies. The industry's achievements
in raising productivity five-fold through the application of IT
and modern manufacturing practices are testimony to this and its
place in the UK's "new" economy.