Cast Metal Industry

HC Deb 31 March 2004 vol 419 cc427-48WH

Motion made, and Question proposed, That the sitting be now adjourned.—[Mr. Ainger.]

9.30 am

Mr. Adrian Bailey (West Bromwich, West) (Lab/Co-op)

I am delighted to have secured today's debate in the ballot—a success achieved after several fruitless attempts. I have been particularly keen to debate the subject in Westminster Hall because the cast metal industry faces serious problems, caused mainly by the shortage of scrap metal and the consequential soaring of prices but also due to other increases in the price of raw materials, which are putting additional pressure on the industry. As a result, one cast metal firm has gone to the wall—Keighley castings in Yorkshire. It would not be an exaggeration to say that unless action is taken a number of other companies could find themselves in a similar situation.

About two weeks ago, the Minister for Industry and the Regions met representatives from the cast metal industry to discuss the matter, for which I am grateful. None the less, the problems are becoming more serious week by week, so it is appropriate to have a wider debate, in which other hon. Members with similarly affected companies in their constituencies can express their views.

I declare an interest, Mr. Deputy Speaker: I am secretary of the all-party group on cast metal. I also have a distinct constituency interest, because no fewer than 11 foundries can be found in West Bromwich, West; indeed, I am told that my constituency has the highest number of foundries in the country. I am therefore particularly concerned about the impact of the problem on the welfare of my constituents.

I am proud to say that one of those companies, Eurotech Industries of Wednesbury, won the annual company of the year award, given by the Cast Metal Federation, for having invested and expanded over the past couple of years, and for winning new contracts. Like many cast metal companies, Eurotech supplies parts for the automotive industry, including BMW, Audi, MG Rover and DaimlerChrysler, and it has just won two more contracts to make roof castings for Skoda and BMW. I mention that to highlight the fact that although foundries are often thought of as "old" manufacturing industry, some successful companies have invested in new production techniques and are being very successful in a highly competitive market.

The success of one company cannot mask the real issues that confront the sector nationally. I stress the importance of the industry to the country. It has a national turnover of about £2.26 billion a year, and it employs 34,000 people in 580 companies. Most of those companies are small and medium-sized enterprises. Crucially, many of them are concentrated in traditional industrial areas with higher than average unemployment, and the loss of those companies would have a disproportionate effect on the local economy and the local community.

In my constituency, unemployment stands at 5.9 per cent. It has reduced by about a third since 1997, and the local economic situation has improved enormously over the past five years. However, the prospect of local cast iron companies folding, with the resulting unemployment, would be a serious setback. I cannot view it with equanimity.

The cast metal sector's market is hugely concentrated in the automotive industry, and about 50 per cent. of total production goes to the car industry. That is enormously significant in the west midlands, because the viability of the cast metal industry can have an impact on the automotive sector. Nationally, the industry produces 1.2 million tonnes of castings: 970,000 tonnes are ferrous castings, and 900,000 tonnes come from ferrous scrap, so scrap is a vital component of total castings production.

Scrap is vital. The proportion of scrap that we export has gone up from 40 per cent. in 1995 to 70 per cent. at present. Overall, there is sufficient scrap in the country, but the growth in exports is now causing local cast metal companies extreme difficulties. The result has been an increase in dock prices. Between January 2000 and January 2003, the price of low-grade scrap increased by just 30 per cent.—a significant but not devastating increase; but between January 2003 and January 2004, it increased by 130 per cent. The price of cast iron scrap increased by 70 per cent. and it seems to be increasing further.

Those price increases are caused almost entirely by China's economic expansion, which has led to a phenomenal increase in demand for steel and the raw materials used in its production. In 2002, crude steel production in China rose by more than 21 per cent., and it is expected to rise a further 20 per cent. in the coming year. China's production is greater than that of Japan and the United States put together; they are the two next largest producers, and manufacture huge amounts. Significantly, even China's current huge level of production is insufficient to meet its home demand. China's phenomenal growth has had a profound effect on raw materials and steel prices., but nowhere more so than in the scrap metal sector.

A further potential problem needs to be highlighted. Currently, only 10 per cent. of steel production in China involves electric arc furnaces, which use scrap metal. Therefore, with China using scrap in just 10 per cent. of its steel production, we have a world shortage of scrap. If China increases production using electric arc furnaces because of constraints on the supply of raw materials used in the other 90 per cent. of its steel production, there will be further significant pressures on the world scrap metal market.

What has been the reaction worldwide? The South Korean Government have already limited scrap exports. In the United States, an organisation called the Emergency Steel Scrap Coalition has been formed. Its president, Robert Stevens, has warned that the US is facing a crisis in many manufacturing sectors".

Liz Blackman (Erewash) (Lab)

Saint-Gobain Pipelines in Erewash, which employs 1,400 people and deals predominantly in ferrous scrap, has seen its prices for that commodity rise by 40 per cent. over the past year. Does my hon. Friend agree that it is vital that the Government examine how the global market is working, report back on whether it is fair and, if not, suggest ideas to address the inequalities?

Mr. Bailey

My hon. Friend makes an important point. Although it may be argued that the cost of scrap metal has gone up as a result of international free trade, there are other issues, such as the price of coke. We have no indigenous coke producer in this country. We have to import it from Europe or China, ironically, and there is some evidence that China is restricting the export of coke. Our cast metal producers face a double whammy: scrap metal prices are going up because of the pull of the Chinese economy, while the fact that China restricts the export of coke further drives up costs for cast metal companies in this country. The issue obviously has to be explored because there is some evidence that there is not a level playing field. Although we may be conforming to the best principles of international free trade, China, as the main beneficiary, is not doing so. The Government must explore that issue.

I return to my point about the United States. Mr. Stevens also commented that there is provision under US law for a possible remedy for injurious increases in steel scrap exports: the temporary imposition of export restrictions by the US Secretary of Commerce. Although the United States has done nothing yet, we have to recognise that there is a significant lobby in that country for restrictions on the export of steel scrap. If that were to take place, the impact on the international scrap metal market would be huge, over and above the problems faced at the moment.

Let us consider other countries. Italian producers of steel have already called for protectionist measures. Ukraine has a ban on scrap metal export and Russia has export duties. All over the world, there are already significant moves to ban the export of scrap metal or, in one way or another, to preserve scrap metal for particular host countries. The situation is already serious and has the potential to be devastating. As prices continue to rocket, more countries will be under greater pressure to take unilateral action to protect their interests.

Things might not be so difficult for cast metal companies if other raw materials were not also increasing in price. I have mentioned coke. When we consider the range of prices for raw materials used not only in the cast metal industry but in the steel industry as a whole, we find that the pull exerted by the expansion of the Chinese economy is increasing those prices across the board. Whatever elements are used in the production of cast metals and in the wider steel industry, they are all increasing in price and adding cost pressures to production.

Looking at the impact on other industries, there are three major players in the sector. The first is the scrap metal industry. It will not surprise hon. Members to learn that the scrap metal industry is happy with the current situation. It is enjoying prices that it has never had before. The industry legitimately points out that in this country it produces more scrap metal than is needed for the domestic market and that the current price is determined by global demand. Of course, that is true, but it prompts the question whether, if the global market price continues to accelerate as it is doing, some of the domestic bread and butter market could disappear. Although the scrap metal industry may be enjoying a boom at the moment, the loss of its domestic bread and butter market could mean that at some time in the future it will be dependent on a far more volatile and risky international market. Notwithstanding the current good times in the scrap metal industry, it is appropriate to exercise a cautionary note.

Soaring raw material prices have affected the steel industry as well as the cast metal industry. Corus has increased prices by 20 per cent., and there is an increase of another 18 to 20 per cent. in the pipeline. It accounts for about 90 per cent. of UK steel production. The industry has been more relaxed about the issue of scrap metal prices, but that is largely because it has contractual agreements with its consumers whereby it can pass on the prices. However, the scale of the price increases is such that even some of the consumers of the raw steel are beginning to complain and there is some evidence that they may be trying to find cheaper alternatives elsewhere.

Malcolm Bruce (Gordon) (LD)

Does the hon. Gentleman realise how the problem has become perverted? It has affected us north of the border. On my way to the airport this week, I was faced with a series of cones along the road I normally pass down because all the manholes and grids had been removed. They had clearly been sold to the scrap metal industry. Not only is the situation encouraging theft and resulting in costs to the public authorities, some scrap metal dealers are colluding in crime.

Mr. Bailey

I am grateful to the hon. Gentleman for raising that point. It is a somewhat bizarre manifestation of the problem; I did not realise that it had emerged north of the border. In Gloucester, 40 manhole covers have disappeared and in Cambridgeshire, 150 disappeared over only a couple of days. Even in China, bizarrely, 1,800 disappeared in Shanghai over several days. So, in China, the main manufacturing country and the driver of this increase in prices, manhole covers are being stolen and recycled, presumably to replace the manhole covers that have been stolen. The only beneficiary of that bizarre cycle of economic activity is the thief who steals them.

Mr. Andrew Mitchell (Sutton Coldfield) (Con)

I am listening with great interest to the case that the hon. Gentleman is making. Leaving aside manhole covers, does he accept that scrap metal prices are rising so steeply partly due to the sort of protectionist measures he mentioned, which are being taken in some countries? Such measures limit the international market and lead to price rises.

Mr. Bailey

Certainly, any country that takes protectionist measures and thereby limits the supply of scrap metal on the international market is contributing to the problem. However, it is fair to say that the main cause of the problem is undoubtedly China's economic expansion. Obviously, there is potential to ease some of the pressure by negotiating with countries that are restricting export and might be persuaded not to. That is an avenue that the Government should consider.

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe)

Is that not the reason why we need the World Trade Organisation and why we need to operate within its rules?

Mr. Bailey

Yes. All the players in this situation recognise that not to operate within the limits laid down by the WTO could cause problems. We should ensure that everyone who operates in that market situation does so according to the rules, so we are bringing pressure on the Government to work through the European Union and other allies to ensure that that happens, but I shall come to that later.

I was talking earlier about the impact on the steel industry alone. I said that some consumers of raw steel products are beginning to complain, which could affect the basic steel industry itself. Furthermore, UK Steel said in a submission to me that its position would change if the United States took unilateral action to export scrap metal. In that event, UK Steel is anxious that the Government should be in a position to take immediate action.

The cast metal industry is the most affected. For example, raw materials constitute about 22 per cent. of the total costs of cast metal manufacturers, and scrap metal accounts for 60 per cent. of that figure. Price increases on the scale that I have outlined mean that prices must be increased by about 10 per cent. to cover those costs. Many companies operate on tiny margins and cannot pass on that increase, especially those with fixed price contracts. Such companies have experienced huge difficulties, which to date they have met with great resourcefulness. However, as prices continue to rise, the pressure becomes greater all the time. I am not talking about the long term, but about price increases of 10 per cent. per month, which is hugely significant for such companies.

The issue involves not only prices, but the availability of scrap metal. Some companies cannot obtain the scrap metal that they need to operate. I received an e-mail from one company that said: I have a buyer spending most of his time trawling the local scrap dealers to obtain adequate supplies and the prices are still rising!! As you can imagine this has also resulted in huge increases in the price of pig iron and we are still finding it very difficult to get these costs recovered in higher selling prices. One company told me that it had come within half a day of having to stop production. I heard a tale of another company that expected a delivery of scrap metal that never arrived. When the company phoned the supplier, it turned out that somebody else had made a bid for that lorry-load of scrap while it was en route and the lorry was diverted to another manufacturer. That conveys something of the knife-edge existence that some companies endure.

Mr. Peter Pike (Burnley) (Lab)

My hon. Friend says that firms are living on a knife edge, but does he accept that most in the industry suffer from the added burden imposed by the near doubling of insurance, which also makes trading difficult?

Mr. Bailey

My hon. Friend tempts me down a path. That issue has been the subject of much debate. I completely agree with him, but I hope that he will forgive me if I do not develop that point, because I am conscious that other Members want to join the debate.

Other effects will include not only pressure on the margins of companies in the cast metal sector, but increases in the prices of a range of consumer goods, particularly in the automotive industry. We could suffer from a double whammy, because if the prices of castings become too high, the automotive industry might look to other sources, including, again, China. We are looking for a level playing field, to ensure that the costs of finished castings from our local cast metal producers do not become excessively high and thereby provoke that course of action.

I conclude with some observations. I agree with the Government that the free market and international trade are extremely beneficial, and that intervening unilaterally at one point can have unintended consequences that may not be helpful to anyone. I know that the Minister has ruled out export quotas and, as nne who was vociferous in his criticisms of the American Government when they introduced steel tariffs, I cannot logically argue that unilateral action is the most appropriate way forward. However, the Government must recognise that there are certain situations in which industry conditions can change so dramatically in a short period that the potential consequences are dire. That is the situation that the industry faces. If prices continue to accelerate at the current rate, the consequences could be devastating.

The European Union needs to take urgent action and work globally to pre-empt problems that affect not only this country but the whole of the EU. I am informed that about two weeks ago there was a meeting in the EU to discuss the situation and to monitor trends in the industry.

Mr. Sutcliffe

To help my hon. Friend, and because there may not be time at the end of the debate to go into enough detail on all these matters, I can tell him that the meeting was deferred.

Mr. Bailey

That reinforces the need for this debate. The industry is in such a situation that it cannot afford to have people in key positions deferring meetings.

Mr. Dennis Turner (Wolverhampton, South-East) (Lab/Co-op)

I have been a committed European all my life, but I would just like to advise my hon. Friend and the Minister that they should not place too much store in the collective commitment of the EU on these matters. I have a long memory of the EU and remember the d'Avignon plan, under which we all contributed to a reduction in steelmaking capacity in our country and throughout Europe, but Europe did not honour its commitments. We lost a great deal of capacity in this country, and I ask my hon. Friend to reflect on that fact.

I have very fond memories of Bilston steelworks. We lost that plant, which made wonderful steel for this country, 25 years ago. I ask my hon. Friend to point out to the Minister that we ought to consider production targets in this country. Looking after our own economy is crucial and we should not have to depend on so much importation.

Mr. Bailey

I thank my hon. Friend, and I would be the first to defer to his long experience in the sector, which goes beyond any experience that I have had. However, I think that he would agree that it would not benefit anyone to have any sort of international trade war. Action must be taken within a regulatory framework that is best for everyone collectively.

Monitoring is not enough. We need action, and the purpose of the debate is to convey to the Minister the depth of feeling among hon. Members who represent companies in the sector about what is to be done and the implications for the well-being of their constituencies. There is evidence that in certain areas of production, particularly coke, there are imperfections in international free trade. If we cannot do anything about price pressures on cast metal, it will bring some relief to a beleaguered industry if we can relieve such pressures in other areas. Will the Minister also consider the potential of EU industrial policies to enable assistance to be given to small and medium-sized enterprises in the sector?

Mr. Deputy Speaker (Mr. Frank Cook)

The Chair is anxious to accommodate all right hon. and hon. Members who want to contribute to the debate, and I will never complain about the brevity of contributions, but I must offer the admonishment that in this Chamber we normally start the first of the three wind-up speeches 30 minutes before conclusion. We therefore have exactly 30 minutes left for Back-Bench contributions. I ask hon. Members to take that into account when making their speeches and when accepting or responding to interventions.

10 am

Mr. Peter Pike (Burnley) (Lab)

I take note of what you say, Mr. Deputy Speaker. I had in any event intended to be brief, but I did not want the debate to be dominated by the west midlands, although I congratulate my hon. Friend the Member for West Bromwich, West (Mr. Bailey) on securing the debate. I know that he has taken a great personal interest in the subject since he was elected, and he is a founder member and officer of the all-party group.

The issue is of concern in my constituency, where most people are still employed in manufacturing, although the number is diminishing all the time. As soon as my hon. Friend told me that he had secured the debate, I contacted two companies in my constituency to check exactly how they saw the situation. I spoke first to Stephen Gill at Lupton and Place, a company that I have visited many times. I have had a good relationship with the present boss and his father, Derek Gill, over many years, and I know about the work that they have done to enable the industry to survive through difficult times so that it is still in business now.

Steven Gill emphasised all that my hon. Friend said in his speech about the problems of scrap shortages, including the particular problems for smelters and the fact that aluminium is attracting such high prices. China is the main buyer and the main source of problems for the industry locally. The company has a battle to survive and to obtain the raw material that it needs. There is a big impact on prices. Many products that the company makes are now made in China and sold here, so there is a double whammy: they lose the raw material and are not able to sell their products, because cheap labour costs in China mean that it can outbid them.

I spoke also to Mr. Keith Taylor at Lupton Smallshaw. As a result of my conversations I intend to visit the company soon to see exactly what it does. Mr. Taylor said that the price of scrap iron has risen from £85 to £142 per tonne in 12 months; the price of nickel has doubled from £8,000 to £16,000 per tonne in four months. He mentioned China, but he also said that India is increasingly moving into the market. We all know that both India and Pakistan are enjoying GDP growth of between 8 and 9 per cent. Their economies are beginning to move ahead, and things are becoming extremely difficult, for the same reasons that they become difficult when cheap labour moves into the market. Mr. Taylor also mentioned insurance. I accept that we do not want to focus on that, but, for someone who is on a knife edge, the doubling of insurance costs can make the difference between surviving or not.

Europe was mentioned too, as it was by my hon. Friend the Member for Wolverhampton, South-East (Mr. Turner). The argument keeps coming up about Britain enforcing and honouring European regulations and commitments far more than our partners in Europe. I am a strong pro-European, like my hon. Friend, and I believe that we should have entered when the original six members signed the treaty of Rome. If we had gone in with a position of strength right at the start some things that have presented difficulties would have been different.

We want to ensure that all our partners honour European commitments and regulations exactly as we do. We want the industry to survive. I look forward the Minister responding to the debate and showing that the Government are prepared to try to ensure the industry's survival.

10.5 am

Ross Cranston (Dudley, North) (Lab)

I congratulate my hon. Friend the Member for West Bromwich, West (Mr. Bailey) on securing the debate.

I start by talking about the big theme of economic globalisation and the impact on world markets of the massive industrial revolution that is taking place in China. As my hon. Friend said, the voracious demand for steel is having an impact on the price of ferrous scrap and coke. One only has to look at the figures to see that. Crude steel production in China amounted to more than 220 million tonnes in 2003, which is about a quarter of world output and double what was produced in the United States. It is also 70 per cent. more than was produced two years before.

Economic activity in the US is also increasing, which is leading to more steel production and partly to a demand for scrap. Supply, too, has been very slow to pick up. The US downturn meant that scrap, which to a degree is a by-product of economic activity, was not available, so there was pressure on demand and supply. When, in my hon. Friend's expert opinion, does he think that the market will correct itself? When will prices either plateau or reduce? Significantly, only 40 per cent. of our scrap was exported in the late 1990s, as my hon. Friend mentioned in his opening remarks. The figure is now some 80 per cent.

The change in world market prices is also having an impact on our cast metal industry. Over the years, there have been cyclical downturns. An answer given by my right hon. Friend the Member for Hull, West and Hessle (Alan Johnson) last June, when he was in the Department of Trade and Industry, showed that there has been a long-term downward trend in the number of foundries and in employment. However, as my hon. Friend the Member for West Bromwich, West pointed out when he opened the debate, the current crisis will have an impact on that cyclical downturn which is out of the ordinary.

Let me cite an example at the micro level. The foundry in my constituency, which is run by Thomas Dudley Ltd., was started in 1920. Yesterday, Martin Dudley, the joint managing director, gave me some figures to underline the crisis faced by the foundry. It employs 130 people and has a turnover of some £5 million. This year, that turnover will be the lowest since 1987–88. The price for ductile spheroidal graphite pig iron was £143 a tonne in December and January, but for April delivery, it is £225 a tonne—an enormous increase. The foundry anticipates that the price for delivery later in the year will be about £300 a tonne. Such a rise in prices brings enormous pressure to bear on companies. It is all very well to say that they can increase their prices to their customers, but they are bound, in important respects, to long-term contracts that have fixed prices with, say, the water industry, so they are under severe pressure.

So far, the company has been socially responsible in its actions. As I mentioned, it has long had a commitment to the area. It is a private company, so it is not subject to the stock market demands for returns of 15 or 20 per cent., which the City demands of manufacturing in this country. It has cross-subsidised the foundry from its very successful plastic moulding business. Frankly, however, it would be unrealistic to expect it to continue for long.

If the company closed, 130 jobs would be lost. The work force are multi-racial, but the unemployment caused would accentuate the black country's problem of older, unemployed white males, whose skills are not easily transferable elsewhere in the job market. Those 130 workers would pay the price for globalisation. As well as the impact on their lives and families, there would be a broader impact on the body politic. In my constituency and that of my hon. Friend the Member for West Bromwich, West, extreme right-wing parties have a foothold and often feed on the disillusionment that comes from unemployment among that group of proud men.

What is to be done? The Under-Secretary, who is standing in for my right hon. Friend the Minister for Industry and the Regions, will no doubt tell us, rightly, that World Trade Organisation rules prevent us from taking unilateral action, but that does not cut much ice with people when they see other countries breaking the rules. Other countries do not seem to have the same compunction about complying with WTO rules. My hon. Friend the Member for West Bromwich, West referred to Korea, and even the United States acted to protect its steel industry when it imposed section 201 tariffs a couple of years ago.

Mr. Sutcliffe

Surely my hon. Friend recognises that at that time the Government acted with our European partners to take the USA to the WTO.

Ross Cranston

Absolutely. My point is that other countries take unilateral action when faced with a crisis. No doubt my hon. Friend will also tell us about action that is taken with our EU partners. My hon. Friend the Member for Wolverhampton, South-East (Mr. Turner) made the point that my constituents make: they are mightily under-impressed by the EU in many respects. Perhaps the Under-Secretary can give some assurance. I understand that the EU has tried to take action on the ban that Russia and Ukraine have apparently imposed to restrict the export of scrap.

I do not have the answers to the problem, but what I do know is that a family company, Thomas Dudley Ltd., is operating in my constituency under enormous pressure, and its closure would cause the loss of 130 jobs with all the implications that I mentioned briefly. I hope very much that the Under-Secretary can send me away from this debate with something substantial that I can relate to that company and its employees.

10.13 am

David Wright (Telford) (Lab)

It is appropriate that I speak in this debate because I represent Ironbridge gorge, where Abraham Darby first smelted iron with coke and started the industrial revol0ution—

Mr. Dennis Turner

With John Wilkinson.

David Wright

Indeed; he used to be called John "Iron-Mad" Wilkinson.

I want to give a slightly different perspective to the debate and talk about the impact of prices on world-class companies. When people think of this business, they often imagine dirty plant and people working in poor conditions, but we are talking about world-class products and companies that are innovative and flexible, as they must be in a competitive world market. In Telford and Wrekin is Aga-Rayburn, which is a world leader in the production of high-quality cookers that are sold at high prices around the world. They are a world-class product. Around 850 employees work for Aga-Rayburn: 180 in my constituency at Coalbrookdale and 450 in the constituency of my hon. Friend the Member for The Wrekin (Peter Bradley). We have been working jointly with the company to try to see how it can manage the escalation of raw material prices.

It is important to point out that Aga-Rayburn has recently produced its profits table, which shows that profits are up. That is incredibly positive, but its main concern is that if there is continuing pressure on raw material prices, it may be cheaper for it to import materials and assemble the product in the UK. That is my major concern, as it may affect the 180 jobs at the Coalbrookdale foundry in my constituency. That foundry sits within 100 yd of where Abraham Darby carried out the first smelting operation. It would be terrible if the Ironbridge gorge and Coalbrookdale area were to lose it. The company has told me and my hon. Friend that it may have to consider importing panels, which are assembled into cookers, from Asia or China. The manufacturing director, Mr. O'Brien, has written to me about that.

I have also spoken to Mr. O'Brien more generally about price increases—an issue that a number of Members have already addressed. He told me that the company was paying about £70 a tonne for cast scrap in January 2003, but that that price had increased to £90 a tonne in January 2004. We have heard today that those costs have increased since then. The cost per tonne of pig iron was £127 in January 2003 and £155 in January 2004. The list goes on. We have world-class companies in the west midlands, and we are concerned that the escalation in the price of raw materials will significantly damage them.

I acknowledge the Government's position on export controls, which the Minister made clear in his interventions. I am not in favour of such controls. I have always been in favour of free trade, and I have made that clear when speaking in debates and in the public arena.

We need to consider three key themes. First, we need to challenge the nations that do operate barriers. We need to look closely, through the WTO, at what other countries are doing. in order to determine whether their actions are affecting overall price increases. We will never be able to cope with some of the economic expansion in Asia, but if other countries are applying barriers, they are falsely escalating prices, and we need to stop that.

Peter Bradley (The Wrekin) (Lab)

My hon. Friend makes an important point. It is also important to realise that when we talk about scrap metal we are talking about a microcosm of the global economy. This afternoon we will debate higher education; one reason that we need world-class universities is to keep up with the investments that are being made in China and India. We are talking about keeping up not only with universities such as Harvard and Princeton, but those in China and India.

We must flex every muscle to ensure that the relevant international organisations do their jobs, not just for us in the west midlands and for scrap metal, but for every economic sector. We need also to convince our partners who have let us down in the past that it is as much in their interests as it is in ours to ensure that there is proper understanding, agreements and alliances in the global economy.

David Wright

I agree with what my hon. Friend has said. There is nothing for me to add to that.

My second point is that we need to work through the EU, and I was disappointed to hear that the EU meeting on the issue was recently deferred.

Mr. Sutcliffe

To help my hon. Friend, I can tell him that the meeting has been rescheduled for 21 April. will talk about that in my closing remarks.

David Wright

I am grateful to the Minister. That will encourage those involved in the industry who read the record of this debate. They will look forward to hearing a report of that meeting from him or the Minister for Industry and the Regions.

My third point relates to coke prices, which are particularly significant for the industry and have increased substantially in recent months and years. Aga-Rayburn has informed me that the price per tonne of coke has increased from £140 in January 2003 to £160 in January 2004, and that it is still going up. I believe that there may be a degree of protectionism around the world regarding coke pricing. We need to use that as a bargaining tool. We must go to the table at the WTO with a wider perspective and talk not just about metal prices, but about other raw material prices that affect the industry. It would be useful if the Minister went away and considered how coke prices are affecting the industry and whether there is any action that we could take.

Mr. Pike

My hon. Friend makes a valid point on coke, production of which has been eliminated in this country. We cannot widen this discussion to a general debate on energy, but is not it true that that example should be taken as a warning not to make ourselves totally dependent on other nations for gas and other fuels in the years ahead?

David Wright

My hon. Friend is right. We need a comprehensive energy strategy, particularly for industry. Coke prices are important to the energy sector.

Liz Blackman

My hon. Friend, whom I thank for his generosity in giving way, is mapping out extremely clearly some courses of action that the Government ought to take. Does he agree that the cost of ferrous scrap is rising so swiftly that action needs to be speedy?

David Wright

I wholly agree. That is why it is incredibly important that the EU meeting takes place soon and that we rapidly communicate the results, which will influence business decisions in the coming months, to industry.

I do not believe that the situation poses a threat to jobs in my constituency at present. I certainly do not get the impression from Aga-Rayburn that there is such a threat. However, there will be a problem for world-class products such as those that the company produces if the price of raw materials increases, because the price in the marketplace also increases as the costs are directly passed on to buyers. My concern is that that is creating pressure in the United States. Aga-Rayburn sells a lot of its product there—as I said, it is a world-class business—and, as it is difficult at present to export into the US generally, price escalation on raw materials could create problems for the company. I want Aga-Rayburn to remain competitive. I have already indicated that its profits are healthy and, in the global market in which it operates, it is important that the situation is maintained.

Peter Bradley

My hon. Friend is rightly proud of Aga-Rayburn, although 1 point out that it smelts the metal in his constituency but makes the product in mine. He makes an important point: as the price of raw materials increases, there is pressure on either production costs or costs to the consumer. Does not Aga-Rayburn's recent record tell a tale? Perhaps it cannot compete on the cost of raw materials or even labour, but it can compete and succeed on quality. There is a lesson there for the rest of British manufacturing.

David Wright

My hon. Friend takes the words from my mouth. That was exactly the point that I was about to make in closing. Quality is crucial: we are not able to compete with the far east on labour costs, so we have to compete on quality. There is a company in Telford and the Wrekin that does just that, so let us ensure that it is able to do so for the next 10, 20 or 30 years and on into the future.

10.23 am

Mr. Dennis Turner (Wolverhampton, South-East) (Lab/Co-op)

I congratulate my hon. Friend the Member for West Bromwich, West (Mr. Bailey) on securing this debate. I feel passionately about the subject. Whatever is discussed in Westminster Hall, I am absolutely sure that there will not be a more important debate for the future of this country. There have been many debates in this House on the steel industry because, clearly, it is a basic industry, and our economy and world trade depend on it. As an industrial country, we neglect it at our peril.

A little bit of history does not go amiss when we discuss the steel industry and how important it is to us, so it is appropriate that we have here a Minister who will tell us about Government policy on that vital industry. I can recall the 1970s, when our steel industry was far larger than it is today. We had massive capacity—too much, I concede—and some of it had to be removed. It is imperative that a country as industrialised as the UK has a steel industry. The Government have to give careful attention to the industry's needs to maintain the country's economy and retain its wealth for the people whom we represent.

Although it is history, the second world war tells us how important the steel industry is. Within a month of the outbreak of war, Mr. Stewart of Stewart and Lloyds, the largest steel maker in the country, was wining and dining with Adolf Hitler. Quotas were allocated at that time, and the quota given to this country was far less than those given to Krupps of Germany or to Italy. We came very close to losing the second world war as a result of that allocation. It was a miracle that with those quotas we were able to produce the steel that gave us the capacity to win the conflict. That indicates the importance of the steel industry to our country.

We have now taken out a lot of the industry's capacity. We invested massively in electric arc furnaces, which have to take very clean scrap. Open hearth furnaces, which we had in this country, could be fed with any scrap, and out of that process came very special steels. The present need for clean scrap explains why we have a supply problem.

In addressing the needs of the interdependent steel, foundry and forging industries, we must ask all countries in the WTO to play their full part in planning the way in which the steel countries operate. If we can do that, we can work on an international level. We must be sure that our home production is such that we can maintain and support the industries that my hon. Friend the Member for Telford (David Wright) talked about The steel industry has lost many thousands of jobs. Unless the matter is addressed correctly, not only by the DTI, but by all Departments, we are in danger of losing many more thousands.

10.29 am

Malcolm Bruce (Gordon) (LD)

This has been an interesting, topical and important debate. We clearly have a problem that has escalated over the past two years and continues to do so. In a way, the problem is due to global economic success. The main cause of that is economic expansion in China, which means economic benefits for the whole world, but leads to disruption in the process. We all acknowledge that development in China cannot be stopped, and we would not want to stop it. The question is how we accommodate it.

The point has been made that a substantial increase in economic activity in a market such as China causes strategic bottlenecks and problems with commodity prices, which international organisations may not be fully equipped to deal with. It is true, as the hon. Member for Wolverhampton, South-East (Mr. Turner) said, that we were largely self-sufficient in steel in 1970, but the reduction in capacity means that nearly half our steel requirement is now imported. That situation cannot be reversed. It is probably not worth going back over the history to see why we went from there to here, but it is fair to suggest that there is a strategic reason for having sufficient capacity and not being too dependent on imports of steel or the raw materials and fuels that enable us to make it. We are, however, operating in a global market and in a privatised industry, which it is sometimes difficult for the Government to control.

That raises the issue of steel quotas and demonstrates the short-sighted folly of the American Administration in imposing them. We now hear that they may do the opposite, particularly as this is an election year, but we must remember that when steel prices were low, they sought to restrict imports to protect their domestic steel industry. I fear that it was not the EU or the WTO that led to a resolution of the problem, but domestic consumers of steel in the US who, within a relatively short period, were saying that the restriction on imports was disadvantaging their industry by forcing up the price of domestic steel products in the US market.

We now hear that the US is considering a ban on the export of scrap products, and I believe that it will shortly have the same problems as before. I have made that point several times, and I am very much at one with the Secretary of State for Trade and Industry on the issue. The speech that she made in Mansion house a few weeks ago was bang on the button. She said that it is frustrating to deal with the US, which presents itself as the great engine of free trade but is one of the most protectionist economies in the world. We want to be persuasive, not confrontational. We should tell the Americans that trade ultimately benefits everyone, even if it creates short-term difficulties. Providing short-term, knee-jerk political solutions to commercial problems often causes more long-term damage than trying to find ways through them. All hon. Members' speeches today have suggested that we try to do the latter.

I mentioned the bizarre local impact in Aberdeenshire that I observed last week. Each week that the House sits, I drive from my house to Aberdeen airport to fly down to London. Every 50 yd for about a mile and a half along the narrow country road that I drive down are cones marking holes where drain covers had been. Such a story gets on to the national news and people think that it is a bit of a joke.

David Wright

In the west midlands, we call it tatting.

Malcolm Bruce

I am grateful to the hon. Gentleman for that black country jibe. The cones were treated as a bit of a joke, but a local official from Aberdeen city council rightly pointed out that the removal of drain covers was extremely dangerous because it left deep holes in the road without warning. The explanation was that the soaring scrap prices were creating a market for drain covers. Apart from anything else, it would be enormously costly if that happened in every local authority area throughout the country, and we would start to see accidents and even fatalities. Although one might consider it bizarre and take a light-hearted view of it, it is a serious point.

As I said in an intervention, there is a concern that scrap metal dealers or users in this country may be colluding in that activity, and it is important that we get to the bottom of it. If one considers that scrap prices have risen, according to the figures that I have, from £49 to £122 a tonne in two years and, according to one contributor, are now rising by £10 a month, one can understand how that strange market is developing.

On many occasions, I have expressed concern about the imbalance of the British economy and in particular the weakness of manufacturing. I do not regard what is happening as anything like turning the corner, but there is evidence of a manufacturing recovery, and, if that is borne out, it is of course welcome. One indicator of recovery is an increased domestic demand for steel, and I am concerned that the international situation could constrain that recovery just as it begins.

As several Members have mentioned, we must address the issue in the EU. The most important thing is to ensure that we do not impose short-term constraints that would make the problem worse. We must consider what can be done to increase the overall supply of ore, steel, scrap and resources. It can be done. Perhaps we have been short-sighted, but we seem to have been taken aback by the impact of growth in China. We had been discussing and acknowledging it for years, but no one was evaluating what its impact would be.

I was privileged to visit India recently, and I will declare in the Register of Members' Interests that effectively my trip was paid for by the Indian Government. They wanted to show us their high-tech developing economy, which includes car making. Tata Industries in Mumbai is making the new, small, commuter Rover, the City Rover, which is an adaptation of one of their Indian-made cars. If Indian manufacturing is moving into the truck, bus, car and other metal-using markets, its increased use of steel will add to the increased use we have seen in China. It is not in our interests to discourage that or to constrain the dynamics of Indian and Chinese success; it is in our interests to find ways to accommodate it and adapt to it.

The population of India is more than 1 billion, but two thirds of the world's poorest people are in India. With 260 million people there living on less than a dollar a day, Indian expansion has a long way to go before it transforms the lives of those millions of rural poor. I would not support any policy that placed any constraint on the ability of China and India to improve the standard of living of their population.

This debate has been very good. We must address and resolve the bottleneck problem, but we must do so in a way that does not damage trade or our manufacturing recovery.

10.39 am

Mr. Andrew Mitchell (Sutton Coldfield) (Con)

I am delighted to take part in the debate both as a spokesman for my party and as a west midlands Member of Parliament. I congratulate the hon. Member for West Bromwich, West (Mr. Bailey) on the way in which he presented the debate and on raising a subject of importance to the whole country as well as to the region in which he and I are Members of Parliament.

I welcome the general agreement across the Chamber on the diagnosis that the hon. Gentleman put before us. Although the hon. Member for Burnley (Mr. Pike) widened the debate beyond the west midlands and the hon. and learned Member for Dudley, North (Ross Cranston) returned it to the west midlands, there is agreement among us on what the problem is.

One point that I had not appreciated before the debate was the extent to which there appears to be agreement among us that protectionism is not the right way to proceed and that free trade enriches all nations on the planet. That is perhaps why I, followed swiftly by the Minister, intervened on the hon. Member for West Bromwich, West, to ask him to clarify what he had said about South Korea. It was not immediately clear whether the hon. Gentleman was urging us to follow the Koreans and protect our domestic industry or whether he felt that such activity increased the world price of such commodities and should not be permitted, as I think he was suggesting.

I want to make it clear that I am an unashamed, unabashed supporter of free trade as a way of enriching some of the poorest people on the planet, to whom the hon. Member for Gordon (Malcolm Bruce), the spokesman for the Liberal party, referred. It is free trade that offers them the route out of poverty, not protectionism.

The hon. Member for West Bromwich, West was right about the scale of the problem that he outlined. He said that the cast metal industry employs 34,000 people in the UK and produces 1.2 million tonnes of castings, with an output value of more than £2.2 billion a year. He mentioned the large number of companies involved in the business—about 580—of which 80 per cent. are SMEs and nearly half employ fewer than 50 people.

One of the key issues raised was the price of the furnace charge raw materials used by the industry. Such raw materials are all internationally traded commodities, with prices reflecting changing patterns in supply and demand on a month-by-month basis. The Cast Metals Federation has indicated that, with steelworks using a similar mix of materials, the escalation in international scrap prices is a direct result of the increase in the world demand for steel. The federation has suggested that the increase is due largely to high demand for raw materials in China, which was a point that the hon. and learned Member for Dudley, North eloquently made. Another point of common agreement in the debate has been about the massive impact of China and, to a lesser extent, India on our economy and on the world economy. We have only begun to glimpse the effect of growth in China and India. They are huge economies, with high growth rates, which will have a marked effect on the world economy.

I was reminded of an incident involving a senior Chinese tax official—hon. Members may have heard about this—who recently negotiated a bilateral tax treaty with a European country. He told his interlocutor that he employed more people in his department than were resident in the country with which he was negotiating. What is happening in China will have substantial impacts on our economy and Europe's economy.

I reinforce a point that many Members will be aware of and of which I recently became aware, owing to a survey among business men that I conducted in Sutton Coldfield. There are things that the Government can do to help all businesses to deal with the costs that they face. I am talking about regulation and taxation, both of which have a direct impact on the cost base that companies face. In the west midlands there is a feeling, which I am sure Labour Members share, that southern-based decision-makers often make decisions that are southern England-centric. We would like more of the Department of Trade and Industry to relocate to the west midlands so that we can connect much more directly with it and ensure that it fully understands the pivotal importance of manufacturing to our region. About 20 per cent. of jobs in the west midlands are in manufacturing and although it is understood that the number may decline in coming years, I hope that the level of manufacturing by value will not do so.

Transport is very important, and I welcome the Government's decision to make extra funds available to the west midlands. However, I urge the Minister to consider the fact that funds are made available only in a very prescriptive way and cannot, for example, be spent on road or rail. That, too, has a significant impact on the industry.

The road transport directive, which the Government are due to implement by March 2005, will also have a direct impact on the matters before us, and I am concerned about the possible threat to the cast metal industry. The directive, which will increase restrictions on the working hours of mobile workers, is likely significantly to increase costs to the industry and to those who rely on heavy goods vehicles. The Road Haulage Association estimates that the directive will cost companies at least £7,000 per driver and that operational costs in the UK will increase by £3.8 billion in 2005 and £24.8 billion in the period to 2010. The association also estimates that, at a time when it is difficult to attract and retain drivers, at least 60,000 additional drivers, and between 8,000 and 12,000 additional trucks, will be needed. The Quarry Products Association has outlined similar problems with the directive, of which I am sure that the Minister is aware. It is apparent that the directive could present a damaging threat to the industry, and I would like to be assured that the Government do not intend to gold-plate the directive, as they have seen fit to do in so many other cases.

Mr. Sutcliffe

The hon. Gentleman will know that the directive is currently with the Department for Transport, and negotiations and consultations are taking place with the various organisations involved.

Mr. Mitchell

I am very much aware of that, but the Minister will know that the issues would be well put by his Department. I hope that he will undertake to ensure that his colleagues in other Departments understand the directive's effects, about which the industry has eloquently told us.

To conclude—hon. Members will want to hear the Minister speak for longer than me—it is important to understand the negative effects of the Government's regulation policies on industry. The Conservatives are committed to a free trade solution to the problems before us and will support the Minister in ensuring that the WTO bites, and that nations that introduce protectionist measures, which cause some of the problems outlined by the hon. Member for West Bromwich, West, are strongly encouraged to desist from implementing them. Such measures neither enhance their trade policies, as was recently shown in America, nor help the poorest people, whom we want to prosper as a result of free trade.

10.48 am

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe)

I thank the hon. Member for Sutton Coldfield (Mr. Mitchell) for giving me a little extra time to respond to the debate, because many issues have been raised, particularly by my hon. Friends, and I want to respond as best and as quickly as I can.

I congratulate my right hon. Friend, or rather I should say my hon. Friend the Member for West Bromwich, West (Mr. Bailey)—I am sure that he will be a right hon. Friend some day—on raising this important issue. Through his involvement with the all-party group on cast metal, he has since he was elected taken the issue forward in as many ways as he can.

I am also grateful for the contributions by my hon. Friend the Member for Burnley ( Mr. Pike), my hon. and learned Friend the Member for Dudley, North (Ross Cranston), my hon. Friends the Members for Telford (David Wright) and for Wolverhampton, South-East (Mr. Turner), and the hon. Members for Gordon (Malcolm Bruce) and for Sutton Coldfield (Mr. Mitchell). There were also extremely important interventions from my hon. Friends the Members for Erewash (Liz Blackman) and for The Wrekin (Peter Bradley). They all showed their knowledge of this major issue. From the tone of the debate, one might think that it principally affected the west midlands, but, as my hon. Friend the Member for Burnley said, it is a national issue.

I know that my hon. Friend the Member for West Bromwich, West met the Minister for Industry and the Regions recently. I am not standing in as her deputy, but as the Minister for Employment Relations, Competition and Consumers, I am aware of some of the issues that have been raised this morning in connection with jobs and the industry's culture.

I was sad that my hon. Friend should mention that Keighley castings went to the wall. It was in a constituency that neighbours mine, and I was well aware of the impact of its closure on the industry. However, I was pleased to hear that Eurotech Industries at Wednesbury has received an award. I, too, express my congratulations to the company on its excellent work in a difficult and competitive industry.

I want to talk about my foundry experience. As a 19year-old, I applied for a job in a foundry, never having seen one before. The experience of going round it was a shock, to say the least. I have nothing but awe for those who work in the industry and for the hard work that takes place there.

As hon. Members have said, the cast metal industry lies at the centre of the United Kingdom's industrial heartland—both figuratively and geographically. It plays a crucial role in many of our key manufacturing industries, supplying cast metal components for a variety of consumer and industrial applications. It has a significant input to the automotive supply chain, which accounts for 50 per cent. of the castings produced. It is a significant employer and contributor to the UK economy.

According to official statistics, in 2002 the industry employed 24,000 people, generated a turnover of £1.65 billion, and contributed a gross value added of £708 million to the UK economy. I understand that those totals may be even higher when in-house facilities, and companies working exclusively to a specific end-user industry, are taken into account.

I listened carefully to my hon. Friend's expression of concern for the industry's future, for its employees and for the communities in which they live. I recognise that the cast metal sector remains an increasingly difficult market in which to operate. Traditional markets in UK manufacturing have globalised, and UK producers have become exposed to fierce competition from around the world. That has resulted in significant rationalisation since the mid-1980s. The sector also faces stiff competition from imports, particularly from low-cost countries such as India and the far east, where low labour costs, the exploitation of economies of scale and the latest technology have given those producers a competitive advantage.

I can well understand the industry's concern, which has been brought about by recent developments in the price and availability of raw materials, particularly ferrous scrap, which is the raw material used to produce approximately 40 per cent. of the world's steel. The availability of scrap is related to levels of industrial development. Countries such as the UK, with a long history of manufacturing, are major collectors and processors of scrap. Traditionally they are also exporters. By contrast, newly industrialising countries such as China do not have sufficient domestic supplies of scrap and must therefore import. As my hon. Friends said, it is generally known that China's steel-making capacity is increasing rapidly. The growth in the Chinese economy, particularly in steel consumption, has been quite startling. Over the past four years, China has been responsible, either directly or through imports, for over 90 per cent. of world steel growth. According to the Iron and Steel Statistics Bureau, Chinese demand for steel increased by an estimated 22 per cent. between 2002 and 2003, and it is forecast to grow by a further 13 per cent. this year. Overall, world consumption went up by 6 per cent. in 2003, and a further rise of 6 per cent. is expected in 2004.

China currently consumes 50 million tonnes of scrap, 20 per cent. of which is imported. This year, China's imports are forecast to grow to 15 million tonnes—a 66 per cent. increase. Add to that the appetite for scrap in other countries, such as Turkey and South Korea, and the global supply becomes tight, leading to the recent unprecedented price increases.

The rapid expansion of economic activity in the far east has had a similar or even greater impact on the market for other basic materials; for example, coke, ferro-alloys and non-ferrous metals. It seems that the sheer pace of Chinese demand in recent years has caused a considerable upset to the traditional balance of supply and demand.

I accept that those developments are causing problems for all users of scrap. I acknowledge that the situation has brought about hardship for some UK cast metals producers, as they have limited scope to pass those price rises on to their customers. However, no one suggests that it is being caused by anything other than the normal operation of market forces, so I am sure that hon. Members would agree that, in the circumstances, it would be undesirable for the Government to intervene.

Mr. Mitchell

I fully understand what the Minister is saying and he is obviously right. Will he tell us what steps the Government are taking to raise with the South Korean Government the importance of not pursuing a protectionist agenda?

Mr. Sutcliffe

I shall come to that point. I am trying to race through my brief to deal with the points that need to be covered. I will deal with the WTO and the EU; today's debate is vital and I will give whatever answers I can. I will pass on to my hon. Friends in the DTI and the Treasury, and to the Prime Minister, information on the various negotiating routes in the EU or the WTO to ensure that the impact of today's debate, and of future meetings that hon. Friends hold with Ministers, is that we continue to work with the industries involved to find a solution.

Although we are able to diagnose the problems, the solutions are more difficult, as my hon. Friends and the hon. Member for Sutton Coldfield have said. We welcome the WTO rules and it is important to raise concerns with that body if we identify problems. We feel similarly about our EU colleagues, and the meeting on 21 April will be an opportunity to raise industry concerns and ensure that we consider what can be done. Measures have already been taken against non-EU countries that have not been playing the game.

The rate of increase in prices has been a problem for the industry. My hon. Friend the Member for Burnley raised the issue of insurance. He will know that the Department for Work and Pensions and my Department have been considering matters such as employers liability insurance. We need to do something about that and we are having discussions on the matter. A document was published in December considering what can be done to solve some of the problems that industry faces.

The hon. Member for Sutton Coldfield said that the matter was all about the burden of regulations; I do not accept that. I do not have time to issue the challenge that I normally issue to Opposition Members: to name which particular employment regulations they do not wish to apply to UK workers which are available in the rest of Europe.

As a member of the European Community, the UK is not able to take unilateral action on trade matters. Decisions that impact on or affect the European Community's commercial policy are taken collectively by the European Commission and member states working closely together. We are liaising closely with the Commission on that important issue.

To obtain a fuller understanding of the issues we have asked the Commission to prepare an analysis of the impact on the European industry of the current ferrous scrap price trends. That document is due to be discussed in Brussels on 21 April. The UK will ensure that the matter is handled with the seriousness that it deserves. We are aware that Eurofer, the trade association representing the interests of European steel-makers, has proposed the establishment of a monitoring system for Community exports of ferrous scrap, but we understand that that has been rejected.

We are aware that certain sectors of the US steel industry are experiencing difficulties similar to those in the UK. The Government are also aware of rumours that the US Administration are contemplating some form of initiative to restrict or limit scrap exports. I can inform my hon. Friend the Member for West Bromwich, West that as of today no such steps have been taken by Washington. We are not aware of any specific proposal from the US industry. We shall continue to monitor the situation in the US and elsewhere closely.

Hon. Members can rest assured that the Government will take all necessary steps, within the WTO and elsewhere, to secure the removal of any measure taken by the US or any of our other trading partners to limit scrap exports. In our view it is in the best interests of all stakeholders that an open and transparent global market for ferrous scrap is maintained. It is important that we respect the free trade rules of the WTO. We did so when the US took the action that it did under section 201.

The debate has been vital, but there is a long way to go. It was important that my hon. Friend raised it in the way that he did. I shall write to hon. Members about the issues that I have not been able to address to ensure that they know what the Government are doing about this important issue. I shall ensure that there is no underestimation of the Government's—

Mr. Deputy Speaker

Order. We must turn our attention now to the next topic on which we must focus today, which concerns the death of Mr. Steven Fitzsimmons.