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British Steel Faces More Competition Via Chunnel

Britons worry about lingering industry subsidies on the Continent

BRITISH Steel is bracing itself to meet tougher competition when the Channel Tunnel linking Britain and France becomes fully operational in the spring.

Not long ago, the company suffered huge losses year after year. Nowadays it is Europe's most profitable major steel producer.

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What troubles British Steel is that its competitors in Germany, Italy, and Spain are likely to go on enjoying big subsidies and resisting labor-force cutbacks, despite last December's European Community agreement to curb state aid to the industry and cut steel production.

Managers of British Steel, which was privatized in 1988, say the earliest direct challenge via the ``Chunnel'' is expected to come from French steel companies. They will easily be able to put their product on freight trains running under the Channel to Britain. France's Usinor Sacillor company is the largest steel producer in Europe.

Brian Moffat, British Steel's chairman and chief executive, also anticipates that manufacturers in Eastern and Central Europe will try to gain a foothold in Britain.

If they do, the company, which racked up net profits of 27 million ($40 million) in the first half of 1993, is likely to come under renewed pressure to cut its operating costs to compete in a world still over-supplied with steel.

Mr. Moffat and earlier British Steel chiefs are no strangers to wielding the knife in pursuit of greater efficiency. In the last 15 years British Steel's workforce has been slashed from 180,000 to 41,000. Only four of the 37 facilities which used to operate when the company was government-owned are still turning out steel.

``Ours is a much sharper, leaner company than it used to be,'' Moffat says. ``Some of the steps we had to take were painful, but they were necessary.''

Under the EC's December deal, industry ministers agreed to total production cuts of 5 million tons. But they also approved state subsidies of $7.6 billion.

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British Steel gets no subsidies. Its executives say that there is an overcapacity of 30 million tons in the EC's steel industry.

In what promises to be a test case of new EC policies, the city authorities in Bremen, Germany, are offering to rescue a large local steel mill. The British government is likely to oppose the deal, arguing that it will put unfair pressure on private manufacturers such as British Steel.

Last August a report to the British Parliament claimed that open and hidden subsidies paid to companies in Germany, Italy, and Spain were one of the main reasons why the large Ravenscraig steel plant in Scotland had to be shut down in 1992.

A particular target of British ire in the past has been the giant Italian state-owned steel company Ilva. Now, however, the Italian government says it wants to privatize Ilva, and British Steel has shown an interest in buying part of it. Moffat and Alessandro Ovi, chairman of Ilva's holding company, held talks last summer.

In September workers at Ilva's giant plant at Taranto, in southern Italy, struck in protest against threatened job cuts - a sign that making the industry more efficient in Italy will be painful.

An indication of the knife edge on which British Steel is working as it struggles to maintain profits in a depressed market came earlier this month when it closed a seamless tube factory in the Midlands, eliminating 330 jobs. Lower prices offered by Japanese manufacturers of steel tube were the main reason for the closure, company executives say.

In Europe, steelmakers have a long way to go before they reach the levels of efficiency now routine in most production at British Steel. The International Iron and Steel Institute says that since 1974 British Steel has cut employment by 79 percent, compared with 55 percent for the rest of Europe.

In Germany, 132,000 workers are employed in steel, compared with 232,000 two decades ago. The addition of eastern Germany to the Federal Republic has made it harder to order manpower and subsidy cuts.

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