Pound tempers rise in output at British Steel
Tuesday 18 February 1997
Figures from the company, to be released at the end of the month, will show its output of crude steel hit 16.12 million tons in 1996, up from 15.7 million tons recorded in 1995. Last year's output was the highest since the 16.48 million tons produced in 1989 and should be enough to maintain British Steel's third place in the world league table. Usinor Sacilor, the French steel giant which took the fourth spot in 1995, reports its results today.
However, the production statistics come as industry analysts take an increasingly bleak view of British Steel's prospects. The 25 per cent rise in the value of the pound over the past year has hammered profitability and taken its toll on the group's share price, which has plunged by almost a third since September.
For every 10 pfennigs rise in the value of sterling, British Steel's profits fall by roughly pounds 100m. Yesterday a spokesman warned that much of the group's hedging against foreign currency movements would run out at the end of March, when the full force of the appreciation of sterling would hit the accounts.
Another severe problem has been the general European slowdown in growth which has limited demand for steel products. Producers have cut prices in an attempt to kick-start the market, a tactic which British Steel was forced to follow to justify its position as the world's lowest-cost producer.
Analysts have already downgraded their forecasts for British Steel's annual profits for the year to March to around pounds 480m from the pounds 1.1bn made in 1995/ 96. For 1997/98 profits could drop further to around pounds 350m.
One analyst explained: "Their competitive position is pretty awful at the moment. These production figures just endorse the fact that British Steel is maintaining market share abroad by slashing its prices."
Sir Brian Moffat, British Steel chairman, has already warned of further job cuts to compensate for falling profits. British Steel's investment spending this year is likely to total pounds 400m, up from pounds 321m the previous year.
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