The UK’s metals, mining, exploration and energy businesses are core to both the City and the national economy itself. This is due, partly, to the search for a safe financial bet against a backdrop of international uncertainty, especially in the Middle East. In April, for instance, the price of gold hit a 25-year high, silver a 23-year peak, and other metals like zinc and copper are also reaching record levels. The UK metals and mining sector sees annual sales of around £90 billion and its exports account for around 40 per cent of this turnover, or £35bn.
The sector includes at least 50,000 firms of various sizes, in disciplines ranging from mining, forging and foundries, metal stockholding, finishing and recycling, to industrial ceramics and minerals and sheet-metal working.
Chinese market boosts profits
Both the metals and mining sectors have had a mixed year, as what City traders saw as a successful period in commodities had, at least temporarily, run its course. That good spell has been largely a factor of the growing industrial clout of China. In February mining giant Anglo American, which owns 45 per cent of the De Beers diamond mining group, saw its profits surge thanks to a soaring demand from the People’s Republic for commodities such as iron ore, zinc and platinum. Another mining colossus, Anglo-Australian conglomerate BHP Billiton, also saw huge profits for the second year in a row, again being driven by a Chinese thirst for copper and iron ore.
But the Chinese state has started to put the dampers on such demand, fearing destabilisation: the world’s fourth largest economy, which enjoys a £60bn trade surplus versus the UK’s £4.8bn deficit, recently raised interest rates. This move saw a definite cooling in interest in this part of the FTSE.
"The government seems to have quietly made up its mind to bolster the atom-smashing sector as a way to improve the country’s non-fossil fuel usage ratio"
In the energy field, some monster UK companies like BP and Royal Dutch/Shell are recording stellar profits, mainly from the upstream (the exploration and production of energy) side rather than retailing petrochemicals. A sub-sector of this market that has long been the byword for being unfashionable – the nuclear industry – made a surprising comeback in 2006 that may see it joining such profitable ranks some time in the future.
The reason, perversely enough for a business long derided as arch-pollutant, is the rise of the green agenda. The government seems to have quietly made up its mind to bolster the atom-smashing sector as a way to improve the country’s non-fossil fuel usage ratio. British Nuclear Group, the umbrella domestic nuclear company, has now been privatised, though its full results will not be released until later this year.
Talk of a profitable UK nuclear sector may be premature as the full energy review is not due until mid-year and no one can be certain of its contents. It will be a while before any sort of reinvigorated UK nuclear sector could be compared to say, France’s, which makes 78 per cent of all its generated electricity from nuclear – though at an estimated investment of some £66bn in the last 20 years.
At the moment the UK energy market is still dominated in any case by gas (39
per cent of all use) and coal (35 per cent), followed by nuclear at 20 per cent and renewables a mere four per cent, according to regulator Ofgem.
Unwelcome talk of takeovers
Meanwhile globalisation is definitely making itself felt in the UK energy sector. Russia’s Gazprom has shown an interest in buying up a local energy supplier Centrica, owner of British Gas. Leaked reports suggest that the government would not block such a move, as it wants to stick to its commitment to open up European markets. But the country’s natural gas assets from the North Sea are starting to tail off and the current generation of nuclear power stations are all coming to the end of their lives. British Gas, incidentally, managed to win some unwelcome publicity, when it confirmed that, as part of offshoring moves which saw its billing function relocated to India, the displaced staff were asked to fly to Delhi for up to three months to help train their replacements.