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British Steel Sees The Future And It's Overseas

International -- Int'l Business: BRITAIN


Already in the U.S., it plans to expand into Asia

In December, workers at the British Steel PLC mills in South Wales were greeted with an unusual sight. Steelworkers from the U.S. were handing out leaflets urging their Welsh counterparts to protest against a minimill British Steel was building in Decatur, Ala. The mill might be a nonunion shop, warned the Americans, and operating costs would be so low that the company would shift production there and lay off British workers. Yet the British workers--most of them unionized--did nothing. "It was like they were watching their house float down the river, without recognizing it was their house," says Mike Scarver, who led the United Steelworkers of America delegation.

The incident speaks volumes about the distance British Steel has traveled since the early 1980s, when British unions nearly brought the company to its knees. Today, local workers are so job-hungry they are happy to sign on with British Steel, which has enjoyed labor peace for 16 years. And the company is now so competitive that it wants to be a global player by operating superproductive plants in North America, Europe, and Asia by decade's end.

The global expansion has its risks: Just when the industry is bracing for a slowdown in most developed countries, British Steel is scouting the world for new sites. In its fiscal year ending in April, 1997, company pretax earnings will probably drop by 14%, to $1.4 billion, on $12.9 billion in sales. Yet Chairman Brian S. Moffat bets he can position British Steel for the next upturn in demand by going global now.

The former state-owned company can readily bankroll its expansion. It has little debt and a cash hoard of more than $800 million. "We have probably the strongest balance sheet in the world in steel," boasts Moffat, a 57-year-old accountant who joined the company in 1968.

In the U.S., the Decatur minimill is part of a $450 million venture, dubbed Trico, with LTV Corp. and Sumitomo Metal Industries Ltd. Trico will compete with Nucor Corp., the top player in the business of converting scrap into steel. Indonesia and India are front-runners for the next big investment, which may also involve LTV and Sumitomo. Tony Lancelott, UBS Ltd.'s steel analyst, figures that to achieve a return on capital of more than 20%, British Steel must plow as much as $1.5 billion into a new Asian plant.

These are heady plans for a company that once had a near-death experience. At one point, the company employed 165,000 workers and needed about 14 man-hours to produce a metric ton of steel. Then in 1980, backed by the Thatcher government, the company withstood a 13-week strike, which effectively broke the back of the union. Privatized in 1988, the company now has a workforce numbering around 55,000. The stock, long a laggard, has risen 20% since the beginning of the year and now trades near an all-time high of $3 a share.

Slashing the payroll has dramatically boosted productivity. British Steel's mill in Port Talbot, South Wales, now produces a ton of steel in just two man-hours. By some measures, it costs the company less to make steel than the South Koreans or the Brazilians, two competitive producers. British Steel's labor costs average about $38,000 per employee, including salary and benefits.

British workers vie for these wages. When word leaked out in late 1994 that one of the company's Welsh mills would be hiring new workers for the first time since 1975, the line for applications was so long that it snarled traffic. "My family was over the moon when I was hired," says 33-year-old Paul A. Symons, a laid-off coal worker who joined the Llanwern plant last August for $460 a week.

COPYCATS? In comparison, big U.S. steelmakers pay about $50,000 per employee. The gap is worrisome to the USW, which fears that the Trico plant will adopt British Steel's practice of linking part of employees' pay to performance. That would give rival American steelmakers an excuse to try similar compensation schemes.

British Steel argues that its rank and file will have job security only as long as the company remains one of the lowest-cost producers. That's an increasingly tough task. Newly privatized producers in Italy and France now want to wring big productivity gains from their mills. What's more, Korea and other Asian Tigers are stoking up to supply the industrializing world. But for a company that almost expired, it's nice to be still in the game.By Julia Flynn in Llanwern, South Wales, with Stephen Baker in Pittsburgh

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