House of Commons North East Regional Committee Teesside Cast Products Second Report of Session 2009–10 Report, together with formal minutes, oral and written evidence Ordered by the House of Commons to be printed 23 February 2010 HC 279 Published on 8 March 2010 by authority of the House of Commons London: The Stationery Office Limited £0.00 North East Regional Committee The North East Regional Committee is appointed by the House of Commons to examine regional strategies and the work of regional bodies. Current membership Ms Dari Taylor MP (Labour, Stockton South) (Chairman) Mr David Anderson MP (Labour, Blaydon) Mrs Sharon Hodgson MP (Labour, Gateshead East & Washington West) Mr Denis Murphy MP (Labour, Wansbeck) Phil Wilson MP (Labour, Sedgefield) Powers The North East Committee is one of the Regional Committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No.152F. These are available on the Internet via www.parliament.uk Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/parliamentary_committees/ne/ne_reports_and_publications. cfm Committee staff The current staff of the Committee are: David Weir (Clerk); Ian Thomson (Inquiry Manager); Emma Sawyer (Senior Committee Assistant); Ian Blair (Committee Assistant); Anna Browning (Committee Assistant); and Sian Jones (NAO). Contacts All correspondence should be addressed to the Clerk of the North East Regional Committee, Committee Office, 7 Millbank, London SW1P 3JA. The telephone number for general inquiries is: 020 7219 0654; the Committee’s e-mail address is: [email protected]. Teesside Cast Products 1 Contents Report Page Summary 3 Teesside Cast Products 5 Introduction 5 Why mothballing was announced 5 Attempts to sell TCP 6 Effect on the regional economy 6 Worldwide demand for steel 7 Closing the rolling mill 8 Collapse of the consortium 10 Government response 10 Mothballing 12 Wage subsidy 13 Other uses of Corus land 14 European Union and state aid 15 Carbon Emissions Trading Scheme 15 Renewable energy and the future 17 Conclusion 17 Conclusions and recommendations 19 Formal Minutes 22 Witnesses 23 List of written evidence 23 List of Reports from the Committee during the current Parliament 24 Teesside Cast Products 3 Summary The North East Regional Committee’s decision to take evidence on the Steel Industry arose from Corus’s and Tata’s decision to mothball Teesside Cast Products (TCP) at Redcar and Lackenby by the end of February 2010, a decision put into practice on 19 February. Evidence was given for Corus by TCP’s Managing Director, Jon Bolton. He outlined the fact that demand for slab steel declined exponentially from the autumn of 2008 and through 2009. He did not state that Corus Redcar had no orders for slab. He did make a statement that a wage subsidy would be insufficient to maintain production at Redcar. No explanation of failed partnership agreements was given. A continual criticism was made of the fact that Mr Kirby Adams, Chief Executive Officer of Tata Steel Europe (Corus’s and TCP’s parent company), did not attend in person to give evidence to the Committee. He was made the offer that the Committee would meet with him at any time during its inquiry to fit in with his diary. It is disappointing, and unacceptable, that this offer did not receive a positive response. His only response was written, in answer to a list of questions that may be found among the evidence attached to this Report. The Committee was not, as a result, able to question Mr Adams in any detail about why a decision affecting the lives and livelihoods of thousands of people on Teesside had been taken. A similar disrespect was shown to the multi-union committee representing Corus workers, who told us that Mr Adams had attended meetings only briefly in order to make a statement and then leave, without engaging with the workforce or answering legitimate questions. Evidence produced by Redcar and Cleveland Borough Council and by Tees Valley Unlimited, along with the Joint Trade Union committee and Trades Union Congress, outlined the serious economic devastation that would occur if the TCP plant were mothballed. The number of those made unemployed as a consequence will climb above 4,000. Tees Valley Unlimited outlined work commissioned by Redcar and Cleveland Borough Council that raised the opportunity of keeping Corus manufacturing slab steel if the Government provided a wage subsidy. This idea was supported by the TUC, who outlined the fact that 22 of the 26 Organisation for Economic Co-operation and Development (OECD) countries have wage subsidies in place for industries in economic difficulty. This evidence ended with a request that Government urgently explore the legality of using a state wage subsidy. The Joint Trade Union’s evidence, led by Community, requested explanations of how, and why, potential buyers had failed to achieve a working partnership agreement with Tata. They made reference to the fact that the mothballing of TCP would lead to a serious decrease in demand for highly skilled and general worker operatives. They made the case that mothballing the plant would require the retention of upwards of 400 highly skilled employees if the plant were to be maintained for operational use. Redcar and Cleveland Borough Council and the Mayor of Middlesbrough made reference to the facts that world steel prices are rising and that the North East Region’s economic 4 Teesside Cast Products development is changing to carbon capture and renewable industries, such as, off-shore wind farms. Thus, a future demand for steel is inevitable. The Regional Development Agency played a central role in securing £60 million in aid for the North East in the wake of Corus and Tata’s decision to mothball the Redcar facilities. It will also be central in funding and organising work to enable those who lose their jobs at TCP, and in the wider local and regional economy, to seek alternative employment. The Minister for the Region, Rt Hon. Nick Brown MP, said that the Government would continue to explore means of returning the plant to production. Teesside Cast Products 5 Teesside Cast Products Introduction 1. Corus decided on 4 December 2009 to mothball its Teesside Cast Products (TCP) integrated iron and steel plants at Redcar and Lackenby. The decision was endorsed by Corus’s owner, Tata Steel. About 1,600 workers will lose their jobs now that the decision to mothball has been implemented, from 19 February. An estimated 1,000 more sub- contractors will be directly affected, with an estimated 8,000 people further down the supply chain also at risk of losing business or their livelihoods. One North East (ONE), the Regional Development Agency, suggests some 346 main suppliers could be affected. About 98 are in the North East, with 235 elsewhere in the UK and 13 international. ONE also suggest that the loss of 1,600 TCP jobs could result in a further 1,100 job losses down the Corus supply chain and 400 more in the wider regional economy.1 That makes about 3,200 North East jobs in total. 2. Corus initially announced that the Redcar blast furnace—Europe’s second largest—and Lackenby Steelmaking and the South Bank coke ovens would be mothballed from the end of January, but kept ready for any possible restart of business. It later agreed to defer mothballing until February, and to keep South Bank open, saving about 100 jobs. These followed earlier decisions in June 2009 to cut 428 more jobs in the area at the Teesside Beam Mill. Corus continues to employ a further 2,000 people in the area, including at Hartlepool and Skinnigrove. Most of Corus’s Teesside iron and steelmaking facilities were constructed in the 1970s, but the company moved its core steel business elsewhere from 2003. 3. Until recently, the TCP plant was profitable. Corus itself describes its Redcar operation as “a unique steelmaking business with the capability to produce a wide range of steel slabs for the international market. It is operated by a highly skilled and experienced workforce and is located in a region that understands and supports the needs of the business”.2 Why mothballing was announced 4. Three broad reasons have been advanced explaining why Corus took the decision to mothball its Teesside plant. First, a worldwide fall in demand for steel resulted in significant falls in production at Teesside. Corus, dependent largely on export, was expected to produce 33% less steel in 2009 than it did the previous year, and was operating at only 60% capacity. Steel demand across Europe had fallen by 40% in the first nine months of 2009 compared with the previous year. Secondly, falling demand has been accompanied by falling prices. In July 2008, prices peaked at just over $1,000 a tonne. By December 2009, the price per tonne of the type of steel produced at Teesside had fallen by nearly 60%. 1 Ev 49 2 Ev 54 6 Teesside Cast Products 5. The third reason is the main reason why the plant has been mothballed. Partly as a result of the combination of the first two factors, an off-take agreement to buy the steel produced at Teesside collapsed. Under that agreement, 78% of slab steel produced at Teesside was to be sold at cost over the 10 years to December 2014 to a consortium of four foreign-based steel companies—Marcegaglia of Italy, Dongkuk of Korea, Alvory of Argentina, and Duferco of Switzerland. The agreement broke down in May last year, partly because the cost price had become higher than the world market price for steel, and the four companies walked away from the agreement.