THERE’S a tendency in the UK to write off steel as an industry that has migrated to Asia.
So yesterday’s announcement that Tata Steel Europe is cutting 900 jobs in the UK is likely to receive a shrug of the shoulders except in south Wales.
In fact, Europe remains the world’s second-biggest producer of steel. In 2010, the EU churned out 173 million tonnes, well ahead of the US (a miniscule 81 million) though certainly behind China (626 million).
True, European steel was badly hit by the 2008 recession – production plummeted 30 per cent. But it has since enjoyed a marked recovery on the back of stronger car exports. So why is Indian-owned Tata seemingly in retreat in the UK?
Tata bought the Anglo-Dutch steelmaker Corus in 2007 – bad timing, admittedly. But the privately-owned conglomerate takes a long view and last month announced it would invest some £400 million in European steel production.
Unfortunately, demand for European steel is now being affected by the euro crisis and the latest downturn in growth in China. Two main German producers, ThyssenKrupp and Salzgitter, have already cut production by 5 per cent.
Tata claims it has an alternative strategy. Boss Karl Kohler says the reason Tata Europe cannot match the cost performance of its Indian steel operations is not wages but lack of a captive (and therefore cheaper) source of raw materials. It is fixing this by accessing thermal coal and coking coal from new open-cast mines in Mozambique jointly owned by Tata India and Rio Tinto.
Tata Europe is about to fire up a modernised blast furnace at Port Talbot using this coal. It plans to break into new export markets easily accessible by sea, in North Africa and the Mediterranean.
With revenues last year in excess of £60 billion, the Tata group has deep pockets. Some see the latest jobs cuts in the UK as proof the economy is not rebalancing towards manufactured exports. Tata is gambling on just the opposite happening.
Delphic references from Threadneedle Street
ONCE, the various factions of the Chinese Communist Party used to trade ideological insults using Delphic references to Albanian politics. Determining who was up and who was down in the Politburo meant deciphering these coded messages.
Today we have the same problem with the Bank of England, especially in these final few months before Sir Mervyn King retires as governor. King is feeling demob happy and has taken to lecturing Britain’s politicians, as he did this week before the commission on banking standards. He told them the government was wrong to water down recommendations from Sir John Vickers to limit severely the amount banks can borrow to fund lending, so-called leverage ratios.
But Paul Tucker, King’s deputy and the bookies’ favourite to replace him in June, took a different view. He told the commission that he favoured looser leverage ratios. Bolder still, Tucker challenged the very idea that separating retail from investment activities will lead to greater financial stability.
Cue media speculation of a major split between King and his seemingly more liberal Dauphin. And if a split exists, would a Bank of England under Tucker take a more pro-City line once it takes over responsibility for banking regulation next year?
Certainly the City hopes so. It has been lobbying the Chancellor hard to appoint Tucker.