What went wrong?

UNTIL last month, the thousands of workers at Teesside Cast Products, the sprawling steel producer which dominates the Redcar skyline, seemed safe in their jobs. Although the steel industry was suffering in the worldwide recession, the Redcar plant, which is owned by Corus, appeared to be insulated from the worst effects of the downturn.

Key to the plant’s future was a ten-year contract to supply slab steel to an international consortium, but now the consortium has torn up the contract and there is no more work, the plant is facing a grim future.

What is the history of iron and steel making on Teesside?

TEESSIDE has a tradition of iron and steel making stretching back to the 16th Century. At its peak in the 19th Century, there were more than 100 blast furnaces along the River Tees, producing 2.5 million tonnes of iron each year.

Steel made on Teesside helped build some of the world’s most iconic structures, from Canary Wharf in London, to the Sydney Harbour Bridge in Australia.

The current blast furnace at Redcar has the capacity to manufacture 3.5 million tonnes of iron a year. Built in the early Seventies, the site covers more than 3,000 acres.

When did British Steel become Corus?

CORUS was formed when British Steel merged with Hoogovens in 1999. The Anglo- Dutch group became the third largest worldwide producer of steel after POSCO of South Korea and Nippon Steel of Japan.

British Steel formed two thirds of the new company and was the senior partner.

Corus fell into foreign hands in 2007 when Tata Steel, part of the Indian Tata Group, purchased the company for $6.1bn.

So where does Teesside Cast Products fit in?

TEESSIDE Cast Products (TCP) was originally an internal British Steel supplier but, as the industry contracted in the UK and Europe, it switched roles to become an international exporter.

The business produces technically sophisticated steel in the shape of slabs.

These fall into three main categories – plain carbon manganese steels, low alloy steels and special steels. TCP produces steel slabs that can be rolled to make plate or sections – commonly used in construction, bridge building and shipbuilding.

It also manufactures slab for the strip market, where it is rolled to a thin gauge and used to make car bodies or panels for domestic appliances.

Who are TCP’s customers?

UNTIL yesterday the products made at Teesside were exported around the world to a consortium of international businesses, including Dongkuk Steel, a Korean re-roller, Duuferco, an Italian/Swiss steel trader, Imsa, a Mexican producer and Marcegaglia, an Italian strip products re-roller and tubemaker. The company signed a ten-year deal with this consortium in December 2004 when, as part of another restructuring programme, Teesside’s capacity became surplus to the group’s internal requirements.

The consortium agreed to take slab production that was surplus to Corus’ internal requirements in 2005 and 2006, and approximately 74 per cent thereafter.

The deal was initially worth $148m – $69m upfront and the rest deferred over the lifetime of the contract. This was increased to $157m two weeks later when the Koreans formally joined the consortium.

How has the recession hit the industry?

STEELMAKERS were left reeling when demand from car manufacturers and construction companies slumped. Steel prices, which had reached record highs, thanks to demand from China, fell by more than 50 per cent.

Steel manufacturers responded by cutting output by a quarter. Worse still, steel prices traditionally lag behind the wider economy by as much as four months. Experts predict no recovery until 2010 at the earliest.

How did TCP react to the downturn?

IN December, the site took steps to reduce volume at the blast furnace by 30 per cent. At the same time, the amount of specialist steel it produced doubled to 30 per cent of output.

The idea was that the plant would be in a stronger position to serve niche markets when steel inventories were run down and demand picked up.

So what has gone wrong?

INITIALLY, it seemed as though Redcar was ideally placed to ride out the recession.

Corus believed it had a firm contract to sell 78 per cent of TCP’s production for ten years.

Then, in January, the future of the business appeared to be secure after a memorandum of understanding to sell a majority stake in TCP to Marcegaglia and Dongkuk Steel was signed. Under the terms of the £328m deal, Marcegaglia and Dongkuk would have acquired a majority stake in the business, with Corus retaining a minority interest.

The first rumours that all was not well surfaced last month when sources suggested Marcegaglia had gone cold. By the end of the month, Corus was forced to issue a statement saying it was unaware of any change in the Italian group’s intentions.

Behind the scenes things were less sanguine. The consortium had indicated that it could no longer honour the remainder of the production contract and that did not bode well for the TCP sale.

TCP’s managing director Jon Bolton flew to London for discussions with the consortium on April 30, but he came away without any assurances and yesterday the consortium walked away from the deal.

This appears to leave hopes of a sale to the Italians in ruins, although Corus has not been told the deal is off. Chairman Stena Marcegaglia is believed to have decided a buy-out no longer makes sense amid gloomy prospects for the global steel industry.

What can Corus do to keep the plant running?

CORUS hopes to move steel production of slabs from its other plants to Teesside on a short-term basis, but Port Talbot and Scunthorpe are already running at 50 per cent capacity and can’t give up much more.

What will happen now?

IF a new supply contract isn’t found, the furnace will be mothballed. Corus has begun a formal 90-day consultation with unions over redundancies at the plant, which is expected to close for a “lengthy” period.

Corus has already idled three blast furnaces, at Scunthorpe, Port Talbot and Llanwern, and slashed overtime as part of a £600m cost-cutting programme.

Mothballing TCP won’t be a simple task.

Blast furnaces – those towering cauldrons of molten steel and brick – can’t be switched on and off like a bulb. If it isn’t done right, hardened and semi-molten materials form which make it difficult to re-ignite.

How will closure impact the wider regional economy?

STEELMAKING remains fundamentally important to the North-East. The manufacturing sector accounts for 19 per cent of the region’s gross domestic product – compared with 14 per cent nationally – and TCP is a key component.

Mass redundancies have a ripple effect on the economy. People put off plans to buy a new car, cancel their holidays and don’t sell their homes.

When thousands of people lose their jobs, the whole of the region feels their pain.