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8 Steel in the United Kingdom
British Steel

By Paul Blyton¹

Part a

The UK iron and steel industry

British Steel The firm and its markets

Size
Production
Overseas investment
Markets
Profitability
Workforce
Costs of employment
Industrial relations

Human resources management

Changes in work organization
Craft restructuring
Teamworking
Training
Overview

Labour-management relations

Consultation and participation
Industrial relations and collective bargaining
Overview

Productivity and quality improvement

Productivity
Quality

Environmental management
Technology
Role of Government in steel restructuring
Conclusions
References

The UK iron and steel industry

Historically, the steel industry in the UK developed in a highly diverse and fragmented way. Originally sited on coal, and later iron ore deposits, many of the firms which were established remained both small and relatively isolated. In an attempt to rationalize and modernize the industry, the 14 largest firms (representing around 90% of the UK's steel-making capacity) were taken into public ownership in 1967 to form the British Steel Corporation. This left a number of smaller producers outside the nationalized industry, several of which continue in operation. In 1988 the publicly owned British Steel Corporation was privatized, to form British Steel (BS) plc.

In terms of UK iron production, at the end of 1995, there were ten blast furnaces in the UK though only eight were in blast; all owned by British Steel (this number of blast furnaces contrasts with the situation in the mid-1970s when there were over 40 much smaller furnaces in blast in the UK). In 1995 the eight furnaces in operation produced 12.24 million tonnes of iron, an average of 1.52 Mt per furnace (though the largest single furnace, at Redcar in the North of England, produced over 3.1 Mt of iron in 1995). All iron production in the UK is produced via the blast furnace route.

Crude steel production in the UK was 17.6 Mt in 1995. Three-quarters of this was produced in 11 oxygen converters (all owned by British Steel), the remainder being produced in 21 smaller electric arc and five electric induction furnaces. This level of steel production in the UK means that in European terms, the UK is a medium-sized steel producer, with a similar level of output to that of France, but less than that produced in Italy, and particularly Germany. In world terms, however, the UK level of steel output is only approximately one-fifth of that produced in Japan, China or the USA; overall the UK currently stands at around 12th in the league of steel producing countries.

Of the steel produced in the UK in 1996, almost 90% was cast by the continuous casting method, the remainder by ingot casting. Ten years earlier the proportion of steel cast by continuous casting in the UK was 55%, while twenty years earlier the proportion had been only 8.5%. In terms of finished products, the UK iron and steel industry produces across the steel product range, including coil, sections, rods, tubes, coated products, stainless, engineering steels and tinplate.

The 1996 UK steel output level represented a return to the 1990 level, having dropped somewhat during the early 1990s, as it also had during the early 1980s (table 1). Current steel output, however, remains below 1970s levels of production.

Table 1. Crude steel production in the UK, 1975-1995 (selected years) (million tonnes)

1975	1979	1983	1986	1989	1992	1995	1996
20.10	21.46	14.99	14.73	18.74	16.21	17.60	17.99
Source. Iron and Steel Statistics Bureau, Annual Statistics for the United Kingdom, 1995.

In 1995, half (50.1%) of total UK production of finished steel went to the domestic market, while the remainder was exported. The total export deliveries of finished steel products by UK producers amounted to 8.23 Mt. Exports of steel products have risen steadily during the 1980s and 1990s; for example, in 1981 total exports were 3.72 Mt, and in 1991 were 7.50 Mt. The average value per tonne of exported steel in 1995 was £444, a significant increase over the 1994 average value (£364). The majority of the steel (74.6%) was exported to Europe, compared with 14% to Asia, 9% to North and South America, and 2% to Africa. Of the exports to Europe, the vast majority (92.8%) went to EU countries and the biggest importer of UK steel products in 1995 was Germany (1.44 Mt).

Like other established steel producing countries, the UK steel industry was severely affected by the stagnation in world steel markets following the 1970s oil crises. Over-capacity in the iron and steel industry became increasingly evident from the mid-1970s onwards and led to a series of total and partial plant closures and large-scale rationalization. The ensuing decline in steel employment was even more marked in the UK than elsewhere. The continuation of a relatively large number of small and medium-sized plants into the 1970s, coupled with a history of underinvestment in the industry, resulted in a delayed reorganization of the industry. When it did occur it was particularly severe in terms of mass redundancies. Between 1975 and 1992, employment in the UK steel industry fell by 78% -- significantly higher than in countries such as Germany (41% reduction) and Italy (48% reduction). More recent years have witnessed a somewhat more stable pattern of overall employment. While the overall tendency in the 1990s has been for a continued reduction in overall employment, the rate of employment decline has slowed considerably (table 3).

Table 2. Annual reduction in employment in ECSC iron & steel activities in the UK, 1991-95 (per cent reduction compared with previous year)

1991	1992	1993	1994	1995
-11.2	-9.5	-3.9	-2.8	-0.5
Source: Iron and Steel Statistics Bureau, Annual Statistics for the United Kingdom, 1995.

The workforce in the UK iron and steel industry is highly unionized. The main trade union representing process workers is the Iron and Steel Trades Confederation (ISTC), with the remainder of the non-craft workers -- particularly those working in finishing activities (for example, galvanizing, coating and packaging) -- represented by the two general unions, the Transport and General Workers Union (TGWU) and the General Municipal Boilermakers union (GMB). The Amalgamated Engineering and Electrical Union (AEEU) represents the majority of the craft work- force, while two other unions, including the Steel Industry Management Association (SIMA) represent the majority of non-manual staff. Overall, levels of union density are very high (around 90%), though following the decline in numbers working in the industry, the actual numbers of trade union members in the steel industry has fallen steeply over the last generation. In 1978, for example, the ISTC (which draws its membership solely from the steel industry) had a membership of 120,000, which had fallen to 39,000 by 1992. A notable exception to the general pattern of unionization and union representation in the industry is that of Sheerness Steel, a Canadian-owned electric arc steel producer in the South East of England, which withdrew trade union recognition in 1992, despite opposition from the extant trade unions at the plant (Bacon, 1997).

In terms of industrial relations in the iron and steel industry, historically the industry in the UK was seen to have broadly co-operative industrial relations, reflected in a comparatively low level of strike incidence. This picture was altered in 1980, however, when an acrimonious three month national strike took place, against the background of widespread closures and redundancies and the decision by the management of the British Steel Corporation to shift the emphasis of pay bargaining from national to local levels. Since 1980 industrial relations in the industry have undergone major changes, with the ending of national bargaining and the introduction of a greater element of local, performance-related agreements. This development is most evident in British Steel and is discussed in more detail below.

Following this summary background of the UK iron and steel industry as a whole, this report now turns to examine in more detail the nature of the largest company within the UK industry, British Steel plc.

British Steel The firm and its markets

Size

Production

Though the vast bulk of British Steel's production takes place in the UK, in recent years it has become an increasingly international company. Its main production links with Europe include its 75% ownership of European Electrical Steels Ltd, formed in 1991 by the merger of British Steel's electrical steels activities (centred at Newport, South Wales) with Swedish Steel's electrical steels operations. In addition, British Steel owns 51% of the stainless producer, Avesta Sheffield AB. This was originally created in 1992 by the bringing together of British Steel's stainless activities (located in Sheffield and South Wales) with the Swedish company Avesta to form Avesta Sheffield. Initially, BS had a 49% stake in this company, but in 1995 increased its holding to 51%. Also in Europe, British Steel owns a German steel plant at Troisdorf, which produces hot rolled special profiles.

¹ Cardiff Business School, University of Wales.

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