Rise in UK orders helps British Steel to bounce back: Chairman urges end to state aid in EU

Click to follow
The Independent Online
BRITISH STEEL, helped by a recovery in UK demand, price rises and cost cutting, swung round from losses of pounds 51m to a pre-tax profit of pounds 27m in the half year to 2 October.

After passing its interim dividend last year, the company is making a 0.5p payment. But Brian Moffat, chairman and chief executive, warned that the critical ingredient for a return to adequate profitability and increased dividends was the will of governments to end the proliferation of state subsidies in the European Union.

On Thursday, the EU's Council of Ministers is due to discuss the vexed question of state aid to steel producers in Spain, Italy and eastern Germany that are making heavy losses. Private sector steel companies are hoping for an agreement to end subsidies and close up to 6 million tonnes of excess capacity among subsidised firms.

Mr Moffat said further delay in resolving state aid could also have an adverse impact on plans being formulated for additional restructuring by the rest of the European steel industry. The total over-capacity is estimated to be 30 million tonnes.

A marked recovery in demand for UK steel led to a 4 per cent increase in the volume of British Steel's sales in the domestic market, where its share rose from 55.4 per cent to 56.6 per cent. Average prices rose by 1 per cent, but turnover rose by only 2.5 per cent because of changes in the product mix to less costly steels.

Much of the improved demand in the UK stemmed from rebuilding of stocks. Overseas sales volume fell by 10 per cent due to a collapse in demand in Continental Europe.

British Steel was able to obtain price rises in its export markets of 3.5 per cent, because of the devaluation of the pound against the German mark and US dollar. The company estimates that devaluation, after allowing for the impact of higher raw material costs of iron ore, added around pounds 20m to trading profits in the first half.

Mr Moffat said UK demand had slowed down since the summer but was still holding up. But Continental European markets remained very depressed and there was little prospect of a recovery either this year or in 1994.

British Steel cut its operating costs by 4 per cent in the first half. It shed 700 jobs during the period and its workforce is expected to fall to 37,000 by next April.

View from City Road, page 30