A STEEL manufacturer forced into receivership by high raw materials costs is to make 37 workers redundant, it announced last night.

Lionweld Kennedy, which is based in Middlesbrough, manufactures, fabricates and installs steel-based products including stairs, railings and bridge parapets. It employs 231 people in the Tees Valley.

The receivership comes as official figures showed the manufacturing industry is suffering from rising raw material costs.

Administrative receivers appointed this week from Ernst and Young, in Leeds, said they were hopeful of finding a buyer because of Lionweld Kennedy's strong order book.

The company fell into difficulty due to its inability to pass on rising steel costs to its customer base because of the number of fixed-price contracts it had already agreed.

Lionweld's management had renegotiated some of the contracts, but ran out of money when its credit insurance cover was withdrawn.

The redundancies, mainly in the parapets and installations business, were made at the company on Tuesday to take account of the present workload.

Ernst and Young said that the main two divisions, which deal with steel barriers on highways and grid flooring, had a strong order book and remained mostly unaffected by the administration.

Joint administrative receiver Hunter Kelly, a partner with Ernst and Young in Leeds, said: "Although it is early days, we are optimistic about the prospect of selling the Lionweld Kennedy business.

"It has a strong order book following a record intake in September and, with the strong brand name and market position, I am sure there will be a number of interested parties.

"We are now working hard to evaluate all options for the business and to work towards achieving a sale as a going concern."

Lionweld Kennedy's subsidiary, John Rawlson Engineering, in Waltham Abbey, Essex, remained unaffected by the insolvency, Ernst and Young said.

A joint venture, Lionweld Kennedy Middle East, based in Dubai, is also unaffected by the administrative receivership.

Manufacturing leaders in the region have expressed concerns about the tight margins that steel fabricators are working to.

Last night, CBI figures showed another drop in factory output across the UK.

The decline - the third in as many months - was stronger than expected, with output down by 0.8 per cent between July and August.

Experts said the data provided the strongest evidence yet that manufacturers were back in the doldrums after signs of recovery earlier in the year.

Soaring raw material costs, fuelled by high oil prices, and weak demand from overseas were blamed for the latest disappointment.

It is likely to ensure interest rates stay on hold at 4.75 per cent for a little longer, possibly until early next year, according to some City economists.