Our industrial landscape is about to be redefined yet again as Britain further loses control of strategic historic industries based here...

Steel: slipping out of control

WORKERS, FEB 2007 ISSUE

The world steel industry has seen phenomenal changes during the past 6-12 months. Takeovers, mergers and restructurings both in steel production and financial bids are occurring on a scale never seen before.

Monopoly and domination of world markets were established facts before the 1914-1918 world war. Monopoly and linked company production – iron, steel, coal, railways, shipping, armaments – set the pattern across great companies, such as Krupps in Germany, Carnegie in the USA, Vickers-Armstrong in Britain.

The clash of monopolies in the First World War may have smashed a number of these companies but the drive to greater monopoly continued up to and beyond the Second World War.

In Britain, the steel industry was of such critical strategic importance during the First World War, that failure in production, quality and delivery seriously impeded the prosecution of British war aims. So severe were these inadequacies that the then Prime Minister Lloyd George effectively took measures to nationalise the steel industry under wartime emergency measures.

Core strategic industries
Similar measures were applied to the coal, rail and forestry industries. In Britain this further raised the importance of the debate about nationalisation of core strategic industries.

On the one hand, it met utopian social-democratic aspirations that nationalisation would take the means of production out of the hands of capital and set the building blocks for socialism in place. On the other hand, capital, so mortified at the prospect of losing a war with its competitors, viewed the need for strategic national industries to be safeguarded from foreign competition and takeover.

In Britain's decline from workshop of the world, what role will there be in the larger economy for production?

To this end the government stored a strategic reserve of thousands of tons of scrap or non-productive steel so that it was always available for the armaments industry if the demand for steel arose at short notice. Ironically, Thatcher, the "Iron Lady", abolished this concept of strategic reserves in the late 1980s, her concept being that the market would always supply.

Those who saw the nationalisation of the steel industry as the first blooming of socialism perhaps did not recognise this more sinister governmental view. The Second World War saw a similar emergency measures programme introduced into steel and related strategic industries.

But the argument for full nationalisation was never settled. It was only in 1967, 50 years after the crisis in the First World War, that a partial nationalisation of 90% of the industry occurred. That nationalisation was in the teeth of the beginnings of the European Union in 1957, whose first measures had been to try to bring a supposed rationalisation to Europe's competing national coal and steel industries. In other words this meant Europe-wide closure with the assertion of private not state control.

Privatisation
The British Steel Corporation survived until 1987 when Thatcher privatised the industry and endorsed the application of EU policy on steel production to the UK. British Steel went from employing 250,000 workers, with integrated planned industrial links for the coal and rail industries and an output of 55 million metric tonnes per year in 1987, to an output of 18.4 million metric tonnes, employing a workforce of 23,000 in 2006.

The period throughout the 1990s was marked by wholesale closure of industry and community across the UK. In 1999 the rump of British Steel was rechristened Corus and came under Anglo-Dutch ownership.

In the early 2000s Corus struggled to survive, with a further 10,000 jobs being axed from some of the most productive and modern steel plants in Britain and losses of over £2 billions: closure seemed imminent.

The industrial revolutions in China and India have seen a reversal of fortunes in the last five years for Corus and the world metal trades. Within the past year in steel across the world a frenzy of acquisition has occurred. The largest steel companies in the world in 2006 were:

• Mittal-Arcelor, producing 108 million metric tonnes (mmt). Arcelor was snatched from under the noses of the Russian steel producer Severstat in mid 2006. Mittal-Arcelor has offices in Luxembourg but has roots in the Indian steel industry.
• Nippon Steel (Japan): 32.0 mmt.
• Posco (South Korea): 30.5 mmt.
• JFE (Japan): 29.9 mmt.
• Bao Steel (Chile): 22.7 mmt.
• US Steel: 19.5 mmt.
• Nucor (US): 18.4 mmt.
• Corus (Anglo-Dutch): 18.4 mmt.
• Riva (Italy): 17.5 mmt.

The order of steel-producing countries and usage differs slightly: China, Japan, US, Russia, South Korea, Germany, Ukraine, India, Brazil, Italy. Britain does not make the top ten.

The merger frenzy has seen the Russian company Severstat relocate and float on the UK stock market at £8 billion solely for the purpose of future acquisitions, its first bite for Arcelor being frustrated by Mittal. The Indian steel company Tata then bid for Corus.

Tata ranks as 56th in world production and was described as a 'mouse trying to eat an elephant' by a Labour MP. Tata's plan to pay for the takeover was based upon borrowing against the assets it hoped to acquire, a little bit like funding your mortgage on the assumption that house prices will always rise.

Enter Brazil's CSN steel company with a £5.9 billion bid – £5.15p a share for Corus. The offer was agreed and accepted by the Corus Board but with a higher offer of £5.50p per share now expected from Tata Steel by the end of January 2007, CSN is expected to be out of the running.

The result will be that Tata Steel leaps from 56th to 5th in world production terms. In strategic terms it is an example of the realignment of mass producing low quality steel companies in Russia, India, Brazil, China linking up with high tech high quality producers in the UK and Europe.

The remaining centres of production in Britain – Port Talbot, Scunthorpe, Teesside, Rotherham – could all be at risk in the medium to long term if production transfers to Corus's sites in the Netherlands or Tata's in India. If Tata–Corus merge then the pressure on the other top ten producers to realign will be intense.

There are huge questions for production directly in Britain. There are 23,000 employed, and for the 166,000 pensioners in the pension fund there are further concerns. The fund has theoretically liabilities of over £14 billion, though within the last two years it has gone into a strong surplus due to the increased demand and price of steel.

Strategic implications
If monopoly has realigned and reduced not the levels of production but the number of players, what are the strategic implications for a nation's self sufficiency, self-reliance and independence?

In Britain's decline from workshop of the world and crucible of the metals trade, what role will there be in the larger economy for production and wealth generation? Britain's steel industry provides the products for state of the art production in aerospace, electronics, vehicle production, diagnostic equipment, etc.

Is the Tata investment of £5–6 billion a price offered to further realign the industry by subsequent closure, market transfer and asset stripping? Will Tata Steel be on Mittal's takeover list? It seemingly was before Tata Steel bid for Corus. Perhaps the world's largest steel producer will eat the mouse, which devoured an elephant?

The industrial landscape of Britain is about to be redefined yet again as Britain further loses control of strategic historic industries based here.

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