Examination of Witnesses (Questions 300
WEDNESDAY 2 MAY 2001
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
(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
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
(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.
307. As a company you told the Trade and Industry
Committee that Ebbw Vale was being closed because demand for its
narrow product rangepackaging materialswas 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
(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.
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
yearI go back as far as the initial one in December. The
share price does fluctuate as the rest of the market has in recent
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.
311. Any idea roughly?
(Sir Brian Moffat) It peaked recently at 75 but I
cannot tell you what it was on 1 February.
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
(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.
315. So you would not recommend to redundant
steel workers that they invest any of their redundancy in Corus
(Sir Brian Moffat) It is not my position to recommend
shares. There is a law against doing that.
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
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