STEELMAKER Corus last night voiced its concern about spiralling energy costs, despite increasing its profits in 2005 - its second year back in the black.

The Anglo-Dutch company, formerly British Steel, said energy bills were £20m higher in the first quarter of the year, but said pre-tax profits for last year increased from £567m to £580m.

Corus, which employs almost 3,000 people in the North-East, was recently promoted to the FTSE 100 index.

The company warned its soaring energy bills could affect production.

Chief executive Philippe Varin said: "If and when needed, we can reduce our consumption for a while. It would affect our production levels, but it's only for a short period of time, so I do not think it is meaningful."

He said growth in the global steel market remained strong, after demand in Europe and North America recovered from a weak third-quarter last year. The company is the world's eighth largest steel operator.

Although selling prices were broadly unchanged in the first three months of this year, Corus said it expected an upturn in business in the second quarter, underpinned by strong demand from China.

Corus' major Teesside operation became a standalone subsidiary, called Teesside Cast Products (TCP), two years ago as part of the steel group's Restoring Success strategy.

In December 2004, TCP, which employs 1,700 at Redcar, east Cleveland, struck a supply deal with a consortium of global steel companies that safeguarded jobs on Teesside for ten years.

Yesterday, Jon Bolton, who was appointed as managing director of TCP last year, said: "For Teesside Cast Products, 2005 was the first year of the agreement with our four international consortium members.

"Since the agreement has been in operation, we have further developed these relationships, which has resulted in investment.

"During 2006, we will be focused on developing new, higher-grade products at a competitive cost to meet our consortium members' needs and thus develop a unique position in the market.

"We have set ourselves some challenging targets for 2006, which I am confident we will deliver."

Anthony Platts, assistant director of investment management firm Wise Speke, said: "These are very reasonable results, considering the steel price having stabilised in the period.

"Demand from China has picked up again towards the end of the last quarter, and there are prospects for selling prices to be increased, to offset rising UK energy costs.

"Corus is to recommence very welcome cash contributions to the British Steel pension fund.

"The shares have provided a good return in the past six months and many employees who backed the company with their own money three years ago when the future of steel on Teesside was seriously under threat are reaping the rewards."

Corus said that the recent increases in the cost of gas in the UK - marked earlier this week by an unprecedented warning from National Grid that demand was exceeding supply - would cost the company about £20m.

Corus suffered a downturn in demand and weaker selling prices at the start of the second half of last year, with fourth quarter profits cut from £184m in 2004 to £65m last year.

But annual turnover increased from £9.33bn to £10.14bn last year as the overall average selling price of steel was 16 per cent higher for the whole year.

Mr Varin hailed "a strong financial result", despite the increasingly challenging market. He said that the proposed sale of Corus' aluminium business to Aleris for £570m was an important step forward and "represented good value for Corus".

Corus shares have rallied in on speculation that it might be a takeover target after a bid by market leader Mittal Steel for its closest rival Arcelor. Mr Varin said Corus was focused on its growth and strategy.