At a meeting with senior British Steel executives in London today, the unions will be told that job losses will need to rise "significantly" from their current level of 1,000 a year if the company is to maintain its competitiveness in the face of the strong pound and cheap imports.
Meanwhile, a Labour MP, Dennis McShane, blamed the cutbacks on the Chancellor's "incompetence in managing the value of sterling" and claimed that the job losses could hit nearly 100 constituencies, some of them marginal Tory seats.
City analysts estimate that about pounds 100m is wiped off British Steel's profits for every 10-pfennig rise in the value of sterling against the German mark, the currency in which steel is traded in Europe.
Profits for the year to the end of March are set to tumble from pounds 1.1bn last year to about pounds 400m-pounds 450m as the pound has appreciated by more than 10 per cent against the mark and some analysts are pencilling in profits for 1997/98 of just pounds 150m.
A British Steel spokesman said that it had originally planned to introduce the job losses over a four to eight-year period as part of a wider cost efficiency programme, but they had been brought forward because of the exchange rate threat to its competitiveness.
He stressed that none of the group's four integrated steel plants - Llanwern and Port Talbot in South Wales, Scunthorpe and Teesside - nor its engineering steels division in Rotherham was threatened by closure.
But he could not rule out forced redundancies: "Initially, the job cuts will be sought through voluntary means but inevitably there will have to be some compulsory redundancies," he added.
The unions were forewarned of the cutbacks in a letter from the British Steel chairman, Sir Brian Moffat, and will be formally notified of the plans today. The Amalgamated Engineering and Electrical Union's national officer Bob Shannon said it would seek urgent clarification of the job losses, adding: "We will resist any attempt at compulsory redundancies."
Keith Brookman, general secretary of the Iron and Steel Trades Confederation, said: "We are extremely concerned about the effects that unfair, illegally subsidised imports and the rising strength of the pound are having on British Steel's profitability and the knock-on effect that has on jobs." Mr Brookman said the union has been given no specific details of job losses.
Mr MacShane, the Labour MP for Rotherham, called for an urgent meeting with the Chancellor to discuss ways of stopping the wild rise and fluctuations in sterling which were threatening mass job losses. "Ken Clarke has deliberately chosen to let sterling rise to help fuel his pre-election boom," he added.
British Steel has been warning for some months about the threat to profits from the pound's rise. In 1995/96, the average pound/mark exchange rate was DM2.25 but in the current financial year it has averaged DM2.45 and may well be higher in the coming year based on the present level of sterling.
About 30 per cent of British Steel's pounds 8bn revenues are directly or indirectly in marks. But the group estimates that four-fifths of its sales are affected by the value of the German currency because it determines how competitive British Steel is against continental imports in the UK market, where the company's share of sales is around 60 per cent.
The strength of the pound also affects the competitiveness of British Steel's customers, particularly those in the car and engineering industries.
However, a strong pound also has a beneficial effect by making it cheaper for British Steel to import raw materials such as the iron ore and coking coal which are priced in dollars. Against this it also now generates 20 per cent of its annual sales in dollars.
The company stressed that the efficiency programme would not just centre on job cuts. The group is also looking at ways of improving raw material procurement and its use of information technology.
Merrill Lynch recently cut its 1997/98 profit estimate from pounds 650m to pounds 280m, based on an average pound/mark rate of DM2.60 throughout the period. Other City forecasts are pitched at around pounds 300m to pounds 400m.
British Steel's fluctuating fortunes
Profit Output W/force Market DM/pounds
(pounds m) (m tonnes) share (UK)
1992-3 (149) 12.5 46,000 56% 2.85
1993-4 80 12.7 41,000 56% 2.40
1994-5 578 13.4 40,000 56% 2.50
1995-6 1,102 15.6 50,000 58% 2.25
1996-7* 400 16.0 54,000 60% 2.45
Other victims of the pound Vickers
Sir Colin Chandler, the chief executive, predicted the strong pound could knock pounds 7m off the group's profits this year. Some of Vickers' hedging against currency fluctuations ran out last year. Sir Colin said he had asked his divisional managers to mitigate sterling's rise with strategies such as price cuts in certain markets.
LONRHO Lonrho has warned that the strong pound, combined with falling precious metal prices, could lower half-year profits by one-third. That would imply a profit fall of about pounds 19m from the pounds 58m it made in the first half of last year. Lonrho is one of the world's largest producers of gold and platinum. Gold prices are down from $415 an ounce in February 1996 to $351.
KINGFISHER Analysts said that the strong pound could knock 10 per cent off profits at the French group Darty, Kingfisher's electrical retail subsidiary this year. Profits at Darty were flat at pounds 113m last year in local currency terms. It was the only Kingfisher division not to produce record profits. ICI
ICI said that if the pound stays at its current levels it will knock pounds 80m-pounds 90m off profits this year. Sterling's strength cost ICI pounds 15m in the final quarter of 1996 but the impact for the year as a whole was negligible. The group says that every one cent rise in sterling against the dollar knocks pounds 5m off profits.