Corus and Its Teesside Storm

Tata Steel’s British acquisition faces labour ire as the recession forces it to restructure operations and cut jobs.

In June, Tata Steel’s UK subsidiary Corus offered a summer treat to recession-hit Britons unable to afford a holiday: free weekend rail ounds of its steel plant in Scunthorpe, North Lincolnshire. There was more that month: a lottery syndicate run by a group of Corus workers at Scunthorpe won a £2.2 million jackpot.

That was the good news. The bad news has been particularly bad, given the recession—possibly the reason that the Tata Group declined Open any comment for this story. There’s no denying that Corus, barely two years after it was bought by Tata Steel for £6.7 billion, is in bad shape. Unusually for a Tata company, the UK-based steelmaker has been threatened by strikes. But also unusually for a Tata company, it has had to lay workers off as a result of a restructuring exercise.

In January, Corus announced that it is to lay off 3,500 staff, some 2,000 of them in the UK. About 500 white-collar jobs could go at Scunthorpe, while 375 jobs are at risk in Teesside and in Scotland. Up to 800 may go in Rotherham and Stocksbridge. Company CEO Kirby Adams’ statement went thus: “Any recovery in Europe appears to be some time off, so it is vital that we take this proportionate and responsible action now.”

Worker unions are crying themselves hoarse. According to Michael Leahy, general secretary of Community, a trade union, “It’s devastating news for our members and their families in steel communities right across the UK.” Politicians have taken the cue. Labour MP Elliott Morley told the BBC he was “disappointed” at the level of cuts and added he had told the firm that job cuts should be a last resort. “The priority is to see if all the job losses are necessary and whether they can be voluntary rather then compulsory,” he said.

That Tata Steel’s Managing Director B Muthuraman had said that “layoffs are inevitable” across its steel operations in the UK and the rest of Europe only added to the fears. “Nobody wants to cut jobs,” he was quoted as saying in the press, “but everyone must realise that the steel industry is in difficult times all over the world and you will see a major restructuring of the industry in the next couple of years.”

Corus is a victim of the times, as the story goes. Demand for steel in Europe has collapsed, dependent as it is on the hard-hit automobile and construction industries. Cars are selling slowly and only the brave are building. To make matters worse, the crisis came all too suddenly. Taking part in a debate in Parliament on 24 March, Ian Pearson, Britain’s parliamentary undersecretary, economic and business, department for business, enterprise & regulatory reform, had said: “During the latter half of 2008, the industry globally failed to anticipate the sudden drop in demand and did not lower output rates quickly enough. As a result, significant stocks have built up.” Gordon Moffat, head of Eurofer, a European steel industry body, had said: “Orders have collapsed by 60 per cent and prices have halved. We have never seen such a reduction. We have seen a demand shock since October and the collapse of Lehman [the American investment bank]. It cannot continue like this without major restructuring.”

Corus, Europe’s second biggest steelmaker with annual revenues of about £12 billion and crude steel production of over 20 million tonnes, could hardly hope to escape. Once the state-owned British Steel, it still accounts for about four-fifths of the UK’s steel sector, and of its 42,000 staff, 24,000 are employed in the country. The company has three major British plants—at Port Talbot in south Wales, which makes 4.5 million tonnes of sheet metal every year, Scunthorpe, which makes 4.2 million tonnes, and Teesside, which turns out some 3 million tonnes.

Among earlier measures, Corus closed down three of its blast furnaces last year to snip production by 30 per cent by March. Late last year, the company approached the Dutch government asking for subsidies for a reduction in staff working hours, equivalent to a cut in 1,100 full-time jobs. Now, to get back in shape, Corus is selling off its aluminium smelters in Germany and Holland. It is also mothballing its Llanwern hot strip mill, restructuring its engineering steels division, streamlining distribution and doing an efficiency review aimed at cutting costs by 20 per cent.

The talking point, however, has been its attempt to hawk its Teesside Cast Products (TCP) operation, a big hint that Tata has few qualms about smashing the old mould and starting anew. Corus insists that some of the measures are part of long-term strategic changes which have only been brought forward by current exigencies. Whether the Teesside decision was part of the original plan, though, has been under debate. The operation employs 1,920 people directly, but its viability was cast in doubt all of a sudden in May, when a global consortium that had agreed to buy 78 per cent of its output until 2014 terminated the contract. The consortium used to buy four-fifths of all the steel it made.

As Adams said, “The contract allowed them to buy the steel at cost price, so these companies have made hundreds of millions of pounds from Teesside during the good years. Now times are tough and they say they’re off. It’s unacceptable. We have kept the plant going for 100 days without any external business and continue to do everything in our power to keep TCP in operation despite the consortium’s breach of contract and the economic downturn.”

Prime Minister Gordon Brown led the condemnation of the consortium’s U-turn: “The workers have served the contract that they have been engaged on very well indeed. We are doing everything in our power to ensure that the contract is upheld.” Lord Mandelson, UK’s business minister, said: “It is essential that Corus does everything it can legally, and with the government’s assistance, to reinstate the offtake agreement. It is unacceptable that such a development should threaten jobs on such a scale, with such a potentially devastating impact on the area.”

Since receiving the termination notice, Corus has been probing options to keep the plant open. The order book is not entirely empty. However, with no long-term orders, there’s no solution in sight. Talks with TCP’s workers on a possible winding down have already begun.

With TCP’s fate in limbo, Corus bosses are now facing strike threats as they struggle to convince the trade unions about job cuts at Scunthorpe, expected to suffer the most layoffs. Plant director Sean Lyons began talks with trade unions in early July over 366 job losses which will take effect at the end of October. Lyons initially asked the unions to come up with a cost-saving solution to avoid job reductions. The multi-union movement at Scunthorpe, however, decided to suspend a ballot on the proposal.Multi-union chairman Mick Fell told local media: “This is a bad day for British steel and all of those communities affected. National officers will now be brought in to negotiate a way forward. We must now stand together in support for all our colleagues at Scunthorpe.” Union leaders have also launched a signature campaign calling on the PM to put Corus under state control on the grounds that Corus had reneged on a national framework agreement by announcing job cuts without consulting workers. On his part, Gordon Brown said he had met Tata Steel Chairman Ratan Tata about job losses and said that the government “stands ready to help Corus in what they’re trying do, not only to save jobs, but to get the steel industry moving again”. It’s a management challenge. This much is assured: how Tata faces it will be watched worldwide.

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Venkata Vemuri