Unions warn over massive job cuts at British Steel

Soaring pound puts as many as 10,000 workers at risk

Union leaders warned British Steel last night that they would resist any compulsory redundancies as the company prepared to spell out its plans for 5,000-10,000 job losses over the next five years.

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

*estimated

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.

Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific