STEEL INDUSTRY (SCRAP METAL SUPPLIES) (Hansard, 25 June 1969)

§ Mr. Darling

It will be generally known that steel production in this country has recently been handicapped by a shortage of scrap. There is a steel shortage which was and is still having an adverse and costly effect on the whole economy and the balance of payments.

One result is that the output of steel is not meeting the demands of the steel-using industries, and that means practically every industry in the country. So we are importing steel which should be produced here and thus putting a burden on the balance of payments. This is a quite unnecessary addition to the cost of imports which are already much too high. Another result is that many steel works are not working to capacity. Some are on short time. This means that steel costs are increased and the earnings of steel workers are down and the economy suffers.

But the result to which I wish to draw particular attention is that to make good the scrap shortage, we are importing scrap, costly scrap, from the United States. The price is £20 per ton compared with the average home price of £12 per ton.

This is another heavy addition to our imports bill. Figures which the Minister of Power gave me in answer to a Question last week showed that United States scrap being imported in the first four months of the year cost £340,000. It will be a much heavier bill before the year is out, and it is a totally unnecessary bill.

We are having to pay these high prices and these huge sums because the forecasting and planning to balance potential demands for steel and supplies of scrap are incompetently arranged and conducted in an atmosphere of secrecy. There is no real shortage of scrap in the country. It is lying around all over the place—abandoned motor cars and lorries, 1668 derelict coal mines, obsolete machinery, discarded cookers and washing machines, old steam locomotives and torn up railway lines. The country is full of it and more and more piles up every day, often to disfigure our towns and countryside.

But this scrap has to be collected, graded, processed and delivered to the steel works. Some furnaces take 100 per cent. scrap for the purpose of making special steels, but on average there is just over half a ton of scrap in every ton of steel produced; so scrap is important.

We have a fairly good system for collecting, processing and delivering scrap. There are thousands of collectors throughout the country and about 800 firms which process and deliver graded scrap. It is not their fault that the steel works have not enough scrap and are compelled to import a great deal at this excessive cost. I am sure that the scrap suppliers could provide all the graded scrap the steel works require if—and it is an important and obvious proviso—they were told in advance, even roughly, what quantities and what grades would be needed and where they would be needed for a reasonable period ahead. But they do not get any forecasts.

The only information they get, I understand from their federation, from the Steel Corporation and the independent producers are figures of scrap consumption and steel works' stocks two months back. They do not get forecasts of potential demands. So they cannot plan ahead. They cannot even plan their own investment programmes properly, and they use very expensive machinery for sorting, grading and processing scrap. It is a capital-intensive business and it is compelled to operate far too much on a hit and miss basis.

I am sure my hon. Friend will agree that every modem industry must do some careful and efficient forecasting of potential demands and undertake a lot of marketing and technical research. In the scrap industry an essential factor in any form of planning is an assessment of the steel producers' future demands, and this is what it does not get—or, rather, information is available, I understand, but it is given to only four firms, four of the largest scrap suppliers, the big boys in the industry, and it is withheld from the rest.

1669 This is a very peculiar arrangement. The four firms—the four favoured firms—act as consultants to the Steel Corporation and to the independent producers, and between them they are supposed to do some forecasting and to advise the steel producers on supplies. I would say that the shortage of scrap shows that the advice which the so-called agency firms have been tendering is incompetent, or that the Corporation has taken no notice of it. But nobody outside this select circle knows who is to blame. The Scrap Federation, the association of scrap merchants and scrap processors, which tries to provide an information service to its member firms, is not told what goes on at these meetings between the Corporation and the four favoured firms. I think that this is an intolerable situation. I am quite sure that it is this utterly unsatisfactory arrangement which has produced the recent chaos in scrap supplies. As I have said, the nation is paying very dearly for this secrecy and what I believe to be incompetence.

But that is not the end of the story. In fact there is worse to come, for although the scrap merchants and the processors do not get the forecasting and information service which they need and ought to receive it seems that they are indirectly paying for it—paying for something which they do not get. Until recently, I believe the four agency firms were paid 9d. a ton on every ton of scrap supplied to the steel works by all the suppliers. On present tonnage this would work out at something over £300,000 a year. My hon. Friend the Member for Rotherham (Mr. O'Malley), who has a major steel works in his constituency which had to go on short time because of the scrap shortage, asked the Corporation about the payments to these agency firms and was told that the so-called consultants were not paid by a levy on tonnage but received a fixed sum which is very considerably less than £300,000". Needless to say, the actual sum they received was not disclosed. I think it should be disclosed and should be made public in the public interest, just as forecasts and full information about the demands for scrap should be made freely available to all the suppliers.

1670 I am quite sure that the Corporation and the independent producers and the Scrap Federation could between them set up a very satisfactory and complete research and information service without any delay, and that that would cost far, far less than the £250,000 or whatever it is—indeed, only about one-tenth of what I believe the agency firms receive. As it is, no supplier, other than these four agency firms, has any idea of the plans which the Corporation has in mind to obtain enough scrap, for instance, to meet the target steel output of 34 million tons by 1975. This is an impossible situation.

I want to ask the Parliamentary Secretary about American scrap, which I believe is coming in at £20 a ton compared with £12 a ton for home scrap. In the Answer the Minister gave last week he said that none of it had been imported by the Corporation. Can the hon. Gentleman say whether this means that it is being imported by the agency firms? If this is the case, and I hope it is not, my hon. Friend will understand that the matter will have to be pursued further. It would be quite wrong for selected firms with inside information to use their privileged position and anticipate the demand for high-priced imported scrap for their own advantage. I should like to be assured that this is not the case.

The Minister has told us that he has put in hand a long-term study of supply and demand for scrap. This is to be welcomed. It should have been done years ago, but I realise that my right hon. Friend and my hon. Friend have not been in office over the whole period concerned. Can my hon. Friend say when he expects the study to be published and whether the results will be made public, or at least made available to all scrap suppliers, or whether it will be restricted to the four favoured firms?

We cannot wait for the outcome of this useful study. Some immediate action is necessary and I want to press the Minister to direct the Corporation to terminate this agency arrangement and do some real planning, openly and in full co-operation with all the interests concerned. What is needed is a sensible arrangement between steel producers and scrap suppliers for a better organising of supplies to meet the steel works' needs and for building up buffer stocks of processed scrap and ingots to meet—as often 1671 happens in the industry—fairly sudden and perhaps unexpected increases in demand for steel, so that we do not get involved in excessive imports from time to time.

I know that it is very expensive to provide and hold stocks of scrap and finished ingots, but the agency fees are expensive, and seem to have given a poor return over the years. This money, £200,000 or £300,000, could be better spent in financing the interest payments on scrap stocks and providing a good information service to the whole of the scrap industry. It should be obvious to everyone that there is no shortage of scrap. What is wrong is the lack of forward planning. There cannot be such planning as long as the information on which the forecasting depends is withheld from the general body of scrap suppliers. Whatever may have been the reasons for supporting this exclusive consultancy arrangement in the 'thirties, it is completely inappropriate now. It is fantastically costly, and hampers the arrangements that the scrap suppliers would like to operate to make their industry increasingly efficient. I hope that the Parliamentary Secretary will announce that his right hon. Friend intends to issue this directive to the Corporation to terminate arrangements and start negotiations for an industry-wide research service.

There are one or two specific questions I want to put to my hon. Friend. Can he say how much of the income which the agency firms receive is spent on marketing or technical research? Is any research taking place? If so, where is it being conducted? By whom is it being conducted, and where are the results published? I am sure my hon. Friend will agree that because steel production in this country is so heavily dependent upon scrap, research into better recovery methods, better marketing methods, and so on, would be extremely useful.

Will my hon. Friend consider extending the study which his Ministry is putting in hand to cover the organisation of the scrap industry, its methods of collection, its recovery and grading processes, the possibility of economic stocking, and in fact all the other relevant factors? I think that a wider inquiry would be very useful, and could well 1672 produce constructive proposals for the benefit of the whole industry.

I am not suggesting that there is a great deal wrong with this industry. Many minor matters may be wrong, but, generally speaking, I do not think that the industry requires a drastic reorganisation. The only thing that is really wrong is the consultancy business, which I hope will soon be brought to an end. If it is to be brought to end, this is a good opportunity to start the wider inquiry which I have suggested, so that this service, which is vital to the whole economy, can be made even more efficient and more useful than it is now.

§ The Parliamentary Secretary to the Ministry of Power (Mr. Reginald Freeson)

My right hon. Friend the Member for Sheffield, Hillsborough (Mr. Darling) was kind enough to give me an indication of some of the specific points that he wanted to raise this evening, and this has enabled me to check on certain points so that I can better answer the questions which he has put to me.

Like my right hon. Friend, we consider that the present shortage of scrap is an important, and indeed a very serious matter, though perhaps it is not so serious as my right hon. Friend has suggested. He gave the impression, whether intentionally or not I do not know, that there was considerable under-employment of plant in the steel industry as a result of the present situation. There were difficulties earlier this year, but I think it is overstating the position to give the impression, which my right hon. Friend perhaps did not intend to give, that there are severe strains on the production side.

My right hon. Friend went on to complain of the failure to foresee the need which is arising for a build up of scrap supplies to meet production needs, but I think I should say what is perhaps obvious in this industry, and indeed in other industries, that it is not always possible to foresee the speed with which a situation will develop, and the sudden surge in demand for steel has created an equally sudden demand for scrap, not only in this country, but in countries abroad.

Again like my right hon. Friend, we in the Department want to be able to take a broader and longer view of the needs of the iron and steel industry in relation to its scrap requirements, and it was for 1673 this reason that the Minister instituted the study of long-term trends in supply and demand which he announced last week, and to which my right hon. Friend referred this evening.

My right hon. Friend asked—and this is a fair question—why there was not a build up of stocks to meet the situation which has developed this year. I think my right hon. Friend will appreciate that a chief reason is that stocking is an expensive business. Its costs could well outweigh the insurance value to be gained in the build up to meet temporary shortages which may arise. I am not putting this as an argument against the policy but to indicate that there is an important problem here.

There are also practical difficulties, such as the amount of space required for stockbuilding, and the deterioration which sets in from the exposure of scrap to weather if held for any length of time. Nevertheless, proposals for greater stocking should be taken seriously, and the British Steel Corporation is now studying the optimum level of stocks which it should seek to hold. The Department will keep closely in touch with this, and my right hon. Friend the Minister will be interested in the results in relation to the scrap imports-exports policy generally.

In our long-term study of trends in the supply and demand of scrap we shall certainly seek the views of consumers and suppliers of scrap; indeed, preliminary talks have already taken place with the British Scrap Federation, the B.S.C. and the British Independent Steel Producers' Association. It is too early to say when the study will be completed, but one of our objectives is to provide the scrap trade generally with better information on the likely pattern of demand over a longer period than is at present possible, and my Department will be in touch with the British Scrap Federation throughout this consideration. I cannot accept the form of proposal put by my right hon. Friend this evening but I hope that he will agree that we are seeking to meet the same objectives, if not in precisely the same fashion.

I appreciate my right hon. Friend's interest in the way in which the B.S.C. tenders advice on matters affecting scrap. I cannot enter into a discussion of what are essentially commercial matters in 1674 relation to prices and costings on an annual or even an individual ordering basis, but the Corporation has the arrangement—inherited from pre-nationalisation days—under review. There are other persons to be consulted, and I hope to be able to leave the matter there for this evening.

It is true that the Corporation is having to import some scrap from the United States but the way in which it arranges this is again a commercial and managerial matter, and is not for me to pursue in detail at the Dispatch Box.

On present imports, I understand that the Corporation does not necessarily deal through its normal traditional arrangements. Neither the Government nor the steel industry wants high-cost foreign scrap metal any longer than is necessary, for obvious reasons, but at present there is no alternative, and in a sense this is a reflection on the booming situation developing in the industry.

On scrap recovery, I take this opportunity to pay tribute to the way in which the scrap trade has responded to the present exceptionally high demand from the iron and steel makers. The amount of scrap at present being supplied to the industry is the highest it has been for many years. But, valuable as this is, it is clearly not sufficient, even with the scrap produced in the industry, to meet demand. It has therefore become necessary to extend export controls to almost all forms of scrap. The control is now fully operational, and only material which is unacceptable at home can be exported.

My right hon. Friend referred to the high prices that we are having to pay for imports. We must remember that in considering the relationship between import and export prices of scrap only the lowest grade of material is being exported, because of the bar that has been imposed, whereas imports are of high quality, and naturally command high prices. Moreover, the figures of imports that my right hon. Friend the Minister gave in the House last week contained small quantities of particularly costly alloy scrap which is far more expensive than that which will be imported by the Corporation.

Finally, I should like to refer, as did my right hon. Friend in the latter part of his remarks, to research. Work is going 1675 on in the Government laboratory at Warren Springs in connection with the separation of mixed metals in scrap, and thus the raising of the usefulness and value of scrap generally. I cannot say what, if any, expenditure the consultants who have been used in the past have devoted towards research and development in this field, but I can speak—as I have briefly tonight—of Government efforts in this field.

The methods being researched can be applied to "shredded" scrap derived from motor cars, domestic rubbish, and the kind of other objects scattered around the country which my right hon. Friend has referred to. I know that the scrap trade is alive to the need for more sophisticated methods of processing. The Government, not only in the work they are doing in their own research laboratories but also in their policy towards the industry, recognise what the industry is 1676 wishing to do. The Government hope that the recent grant of S.E.T. premia and investment grants will enable them to make an even greater contribution to scrap requirements through the extended use of more modern methods. This was part of the argument and discussion which finally led to the decision to assist them in this way.

I would make one last general point, which I hope has been reflected in the remarks I have been making. The best possible use of scrap metals is considered to be an essential aspect of the better use of our natural resources. I hope I have reassured hon. Members that the Government and the steel industry will pay attention to this important matter, and to all the important aspects raised this evening by my right hon. Friend.