The potential mothballing of the Corus Teesside Cast Products plant, near Redcar, has dominated the headlines since the announcement last month. But, with a complicated set of circumstances, Business Editor Owen McAteer analyses where it stands today.
TO the layman, the solution to Corus Teesside Cast Products (TCP) staying open sounds fairly straightforward.
We are in a recession, steel prices are low, so get a Government subsidy, wait for the economy to pick up and then start making profits again, right?
If only it was that straightforward.
In truth, even if there was not a worldwide economic downturn, TCP would be facing many of the problems it does now.
The plant, producing steel slab, is set to be mothballed by the end of next month, with the loss of 1,600 jobs.
The blame has been laid with an international consortium, following its decision last May to terminate its contract to buy most of Teesside’s output.
If the consortium, which Corus is now taking legal action against, had not pulled out, it is unlikely TCP would find itself in this position at this time.
But, in April 2003, when all was rosier in the economic world, the plant near Redcar could easily have found itself in a position not dissimilar to today after Corus said it was surplus to requirements.
Fortunately at that time, Corus was able, after a year’s work, to put together the consortium of international steel-buyers to take 78 per cent of the slab it produced.
It was the same international consortium, consisting of Marcegaglia, Dongkuk, Duferco and Ternium Procurement, which pulled out halfway through a ten-year agreement to do just that.
Simple maths shows that the reason Corus needed to secure the agreement in the first place was that the firm could only use about 20 per cent of the three million tonnes of steel slab produced by the facility.
The bottom line is that, without an outside buyer, Corus simply doesn’t have any use for the vast majority of the steel slab TCP produces.
Jon Bolton, TCP managing director, giving evidence to the North-East Select Committee, in London, last week, said: “The situation we are faced with now, we were faced with in May and actually faced with in 2003 and the conclusion of looking for a partner ended up in the consortium arrangement.”
In basic terms, Corus needs an outside customer to buy the 80 per cent of TCP output it doesn’t use.
REPLACING the Marcegaglia consortium was never going to be easy.
If not individually, as a group of four companies it is the world’s largest consumer of steel slab.
It should also not be forgotten that it is only a year ago that Corus wanted to sell the facility and signed a memorandum of understanding with Marcegaglia and Dongkuk for a majority stake.
Therefore, if not an outright buyer for TCP, what is needed at the very least is a company to take a part ownership of the plant, invest money in it and take the 80 per cent of excess steel it produces.
Mr Bolton repeatedly stressed this point when he appeared before the committee last week.
Like buying a football club that needs team improvements, as well as the money to buy it, any such company would also need the finance to invest in the plant and its maintenance.
And, like the purchase of a football club, since TCP ran into difficulty there have been claims by people saying they wanted to buy it, claims that talks were ongoing with various people, but the harsh reality is that no one has yet put the money up and tried to sign a deal.
As Mr Bolton told the committee: “For the past eight months, we have been in touch with and held talks with various potential strategic partners for the business. It is a process that came to an end in December.”
He added: “We still have some hope that, potentially up to the point and after the point of mothballing, there could be someone who could come forward and take a strategic role in steelmaking on Teesside.”
This is also the hope of the unions, which two weeks ago won a stay of execution for the plant until either the end of February or until raw materials at TCP run out, whichever of these comes first.
But, as Mr Bolton pointed out in his evidence, those people just haven’t been coming forward.
SO why not use the plant to make steel for other parts of the Corus business. Again it is not that simple.
The slab is so named because that is what is produced – a large slab of steel.
The only Corus facility on Teesside that can use raw steel in that form is the Teesside Beam Mill at Lackenby.
Corus has other facilities on Teesside, notably its mills at Hartlepool and Skinningrove, but these facilities need a different shape of steel for its feedstock.
It would be very difficult and extremely expensive to the point of not being economically viable to convert TCP’s slabs for this purpose.
Added to this, Corus already has facilities making the steel required at its other plants.
All plants also need a route to market.
They produce something and sell it. Slab, as an unfinished product, needs a company which needs it to produce something to sell.
Its route to market was through the Marcegaglia consortium and that has now disappeared.
THIS brings us back to why a Government wage subsidy is not considered to be the answer.
Mr Bolton made it clear in his evidence that Corus believes the problem with a subsidy is that it has to be a bridge to somewhere.
If a company said it was interested in getting involved and the deal would take a period of time to conclude, then a subsidy to bridge that gap could work.
But no Government would commit to subsidising any plant indefinitely, especially one that without a major customer was potentially losing millions of pounds a month.
So, it is understood that, although the Government would find a way to bridge any gap if there was an endgame situation in sight, there simply isn’t one at the moment.
Added to this, if someone came forward, the Government and Corus would have to be confident they were genuinely serious about investing long-term, given past experience with the memorandum of understanding last year.
So, as things stand when the Prime Minister or Business Secretary Lord Mandelson say they will do all they can, really all they can do is meet and sweet-talk any potential investor or discuss possibilities with Corus owner Tata.
Apart from that, there is little practical help, in terms of keeping the plant open, they can give.
Even if the plant was nationalised, without customers or a buyer one, two or three years down the line the Government, of whatever colour by then, could be faced with having to mothball the plant itself.
What Government anywhere would want to take responsibility for that?
AT the end of the day, and despite the terrible human cost if the plant closes, Corus is a private company and TCP an independent business.
That is not to say all hope is lost. The plant survived in 2003 – it was first expected to be mothballed last August and has carried on month-by-month for a further six months so far.
There is also believed to still be interest in the plant.
Last week, it emerged that Prime Minister Gordon Brown has dispatched one of his closest aides, a wellknown name, to Asia to lead negotiations.
However, it would appear there are no guarantees, hence the Government’s caution about its prospects beyond the closure date of the end of next month.
The very fact Corus is mothballing and not closing the plant suggests that the steel company thinks it might still have a future.
But if a solution is to be found, it has to come quickly. Time is not on the workers’ side.
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