The Hand of History

Ever since the days when British Steel merged with Hoogovens to form Corus, the Dutch part of the business has consistently outperformed the UK side. Over the years there’s been a lot of soul-searching over the reason(s) why this might be so. Is it the fact that once they’ve made a decision they tend to stick with it, rather than let people to randomly deviate from the consensus ? Is it because they have retained more expertise over the years on how best to run the plant ?

All the above makes sense, although when a number of Dutch people were brought in to try and make a difference on the UK side, the results have not been overwhelming. Still, there’s two obvious differences between IJmuiden and the various UK plants : (1) IJmuiden have everything on the same site whereas the UK has the same operations scattered across the country; and (2) a lot of the equipment in IJmuiden is more modern than their equivalents in the UK. Both clearly show the hand of history at work.

When the steel industry was nationalised in 1967, it was an amalgamation of 14 businesses with multiple plants across the UK. Despite the fact that in the 1970s the aim was to ” … convert BSC from a large number of small scale works using largely obsolete equipment, to a far more compact organisation with highly competitive plant. Steelmaking was to be concentrated in five main areas: South Wales, Sheffield, Scunthorpe, Teesside and Scotland.”1, this plan did not fulfil its aims, and by the time British Steel Corporation was privatised as British Steel plc in 1988, there were still far too many small satellites in existence. Presumably, the politics of keeping employment in different areas across the UK trumped the economical imperative of having all activities from raw products to finished product concentrated in self-contained units.

In addition, the scale and cost of modernising pieces of kit was not carried out in the good days, and by the time the bad days were upon us, there was no longer any money in the kitty. In the 1990s British Steel had always been accused by the markets of underinvesting and keeping a ridiculous amount of money in an underutilised war chest. The situation was the reverse at Hoogovens, where the company was in debt through overspend on investment. To them the merger with British Steel and its big cash injection must have come as a godsend, but that, together with a splurge of money on shareholders at the time of the merger meant that about 2 billion pound sterling had been spent and was no longer available when investments were desperately needed. Tata Steel would have loved to have their hands on that sort of money, but of course, by the time they entered the game the money was gone.

As an example of how the current situation affects the efficiency of Strip Products UK in South Wales, consider the situation of Llanwern and Port Talbot. Until the mid 1990s both plants were run as virtually independent units, and only lip service was being paid to the concept of the “Integrated Works”. Obviously, integration became a natural consequence of the closure of the heavy end in Llanwern in 2002. But consider the situation as it is now: Strip Products UK belated realised that being in the automotive market was where the money was, and most of those products either were hot dip galvanised for the lower body work, continuous annealed strip for the upper body work, and pickle & oiled material for semi-finished products to the suppliers of the automotive sector.

Considering that most of those products come off production lines based in Llanwern (only the continuous annealed material is processed in Port Talbot), this means that the steel needs to be made in Port Talbot, and then transported either as slab for hot rolling in Llanwern, or as coil for further processing in Llanwern. You have already added an automatic cost levy on transporting just the type of product which should have given you the highest margins of income!

Considering this, neither plant is complete : Llanwern doesn’t have a deep-sea harbour, and its hot strip mill can’t handle wide and high-strength material. On the other hand, Port Talbot has a hot strip mill of limited capacity (through space restrictions they needed to plonk for a reversing roughing mill and a coil box to hold the semi-finished coil prior to finish rolling – neither are very elegant solutions and restrict output). Plus, as already mentioned, it doesn’t have a galvanising line nor a separate pickling line.

To be honest, I’d be amazed if South Wales steelmaking really rose phoenix-like from the ashes, since so much of the drawbacks have deep structural roots, and they’re costly to put right.

(1) – History of British Steel, Tata Steel document.

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