Corus back in the black for first time in six years

The British steel industry has bounced back into profit for the first time in six years with the help of booming steel prices, it emerged yesterday.

The British steel industry has bounced back into profit for the first time in six years with the help of booming steel prices, it emerged yesterday.

Corus, the Anglo-Dutch steel maker formed through the merger of British Steel and Hoogovens in 1999, said it expected an operating profit of £125m for the first half of this year, with its UK steel making plants contributing a modest amount. The profit of £125m before interest and tax compares with a loss of £208m for the whole of last year and was achieved largely thanks to an 18 per cent increase in prices.

The group is now on target to make a full-year, pre-tax profit for the first time since its creation five years ago. Philippe Varin, chief executive, said he expected Corus's second-half performance to be better than that in the first six months when it made a pre-tax profit before exceptional items of around £75m.

M. Varin, who joined the troubled company from the French aluminium producer Pechiney 13 months ago said that Corus would close the "competitive gap" with its European rivals this year. But he cautioned that much more remained to be done.

A £680m cost-cutting drive was put into operation last year by M. Varin, although the first fruits of this have only just begun to show through.

Corus expects to raise prices by a further 25 per cent at least in the second part of the year, as surging demand from China for steel stimulates the market and reduces overcapacity to levels not seen in more than a decade. M. Varin said he expected the growth in Chinese steel consumption to moderate to 10-15 per cent this year compared with the 25 per cent witnessed in 2003 while overall world steel demand would rise by 7 to 9 per cent. "We don't see any crash taking place in China, the fundamentals remain strong," he added.

Corus declined to give a breakdown of how much of the profit turnaround was due to its UK plant and how much was due to increased efficiency, saying it would update the market at its interim results announcement in September.

But analysts reckon that higher selling prices are largely responsible. Even though there has been a sharp increase in the cost of raw materials such as iron-ore, coke and scrap this has been comfortably outstripped by the rise in selling prices.

M. Varin said he was hopeful of concluding a deal this year to hive off Corus's Teesside steel making operation into a new joint venture company in which it would hold a 25 per cent stake. He also said discussions were continuing with a number of private equity groups and trade buyers about the sale of the group's aluminium operations.

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