How different things look now. Corus, despite announcing further redundancies, has recently confirmed that it has made its first operating profit since the merger of British Steel and Hoogovens in 1999. And that is only part of the picture; Spanish company Celsa has not only launched its UK operation but already has plans to expand; Thamesteel has revived part of the redundant ASW production plant in Sheerness; and Alpha Steel has grown beyond recognition and is set to become more than a marginal player in this seemingly recovering market.
Ian Rodgers, director of UK Steel (formerly the Steel Association), puts part of this change of fortune down to the resurgence in UK manufacturing. UK steel production is at a higher level now than it has been for the last couple of years, he told MRW. In fact the industry, he said, is in better shape than it has been for the last 30 years. Producers can sell just about every ounce of steel that they can make. Manufacturing activity has been picking up for the last two or three months and this, combined with falling imports, has led to an improved situation for the UKs steel companies.
The continuing influence of China in steel markets, he said, has also had a significant effect on trading conditions. Prices have been driven by Chinas consumption of raw materials, and by the continuing worldwide shortage of raw materials, said Rodgers. However, contrary to popular opinion, he is at pains to stress that the amount of scrap available in the UK is more than sufficient to meet local demand.
There is not a shortage of scrap in the UK. The UK generates far more scrap than we actually need. The problem for the UK steel industry is that much of this scrap (75%) is exported to achieve maximum prices meaning that home buyers have to match these levels.
However, it would be a mistake to think that all in the garden is rosy. Only recently UK Steel chairman Steve Rutherford warned of steel shortages if the market did not adjust to the surge in Chinese demand. In a report to UK Steel members he said that recent worldwide rises in the prices of steel scrap by 40%, of iron ore by 20%, of dry bulk shipping rates by 75% and of nickel by more than 100% had already resulted in price increases by steel producers to downstream processors of between 5 and 15% as companies tried to recover the escalation in raw material costs.
While there is no shortage in steelmaking, rolling and drawing capacity, the extreme tightness in raw material supplies is beginning to threaten steel shortages, he said. Steelmakers and further processors alike cannot absorb any further squeeze in margins.
This tightening of margins is not reflected in Corus year-end figures for 2003. The company reported an 11% growth in turnover which was put down to higher sales volumes and selling prices. The improvement was attributed to the carbon steel segment, which was highlighted as one of the most important sectors in the groups restructuring plans, which caused uproar in 2003. Despite initial scepticism (and the recent announcement that it is to close its heavy section mill at Scunthorpe later this year resulting in the loss of a further 156 jobs), Corus decision to focus on selected carbon steel products already seems to be paying dividends.
Good progress has been made during 2003 on a number of important fronts, chairman Jim Leng said. The foundations for recovery are established. The general market outlook, he said, was more positive than it had been a year ago. Similarly, chief executive Phillippe Varin said: In 2003 the group benefited from a global recovery in steel prices, which together with significant progress in our manufacturing performance and continued benefits from our ongoing cost and efficiency pr