Strong pound halves British Steel profit

British Steel warned yesterday that further strengthening of the pound would force the group to speed up redundancy plans in an effort to maintain its competitiveness against European producers.

Unveiling more than halved interim profits yesterday, Sir Brian Moffat, chairman and chief executive, said the strengthening currency meant the group's cost competitiveness had been eroded while competitors had been advantaged. Efficiency measures already planned would have to be accelerated to regain the competitive edge built up over the past two to three years.

"This will impact on all businesses. We are not talking about radical closures, but we are talking about improvements in productivity which are bound to impact on the employment situation," he said.

British Steel shed 500 staff in the first half. Officials said any further job losses would not be significantly in excess of the normal annual attrition rate of 500 to 1,000 from a workforce which totalled 53,400 at the end of September. But Sir Brian also signalled the end of the downward steel price spiral in Europe which has caused profits to plunge from pounds 550m to pounds 262m in the latest six months. The market was now "just past the low point in the cycle", he said, although how far it picked up depended on customers and the general environment.

British Steel said that the UK market had held up in the first half, but Europe had been weak as a result of destocking and weak underlying demand, leading to sharp price falls. Stainless steel slumped 45 per cent to the lowest price for a decade, but had since recovered between 5 and 8 per cent, with another increase in the pipeline.

"The destocking phase has ended, with price increases across a broad range of products,"Sir Brian said. This pointed to cautious optimism for the period ahead, with British Steel expected to operate at full capacity and strong order books in the second half.

The main price rises had been seen in "value-added" lines, British Steel said, including coated galvannealed, used for pressings in the car industry, and heavy structural steel, where a pounds 10-a-tonne price increase had recently been put through. But Sir Brian said the company would inevitably be a price follower as its European competitors used the strength of sterling to raise prices.

The group unveiled its first expansion plans in the Far East yesterday, involving a pounds 29m joint venture to build an organic coating line and roll profiling facilities with Jindal Iron & Steel of India. Sir Brian said he hoped the "relatively modest" investment would be the start of more than one project there.