Sahariviya Steel UK turns to British coal to fire Redcar furnaces

Thai investors saved one of north east England's heavy industries from extinction - and now their latest act of faith could unlock demand for millions of tonnes of Durham coal.

SSI UK, the UK arm of Thailand's biggest steel company, resumed steelmaking at Redcar on the banks of the River Tees in April last year after buying the mothballed site from Tata Steel.

A downturn in the steel market has made life tough since the jubilant reopening but its owners believe its planned shift from imported coal and coke towards domestic supplies could tip the balance to profitability.

A $60m investment in a pulverised coal injection (PCI) plant, unveiled on Tuesday, will allow the plant to use UK coal for the first time, reducing dependence on expensive specialist fuel from overseas.

In addition to improving the economics of steelmaking on Teesside, the move provides a much-needed boost for what remains of the UK coal industry.

Coal from the Tower colliery in Wales will be introduced this autumn and the long-term aim is to source supplies locally if planning obstacles to opencast mining in Durham can be overcome. Phil Dryden, chief executive of SSI, suggests such a move would bind two of the northeast's most historic products - steel and coal - in a mutually beneficial relationship.

"We'd love to get northeast coal into this place," he says "It's only got to go 20 miles down the road rather than halfway around the world. The inbound logistics are a lot cheaper and the emotional attachment of having it is wonderful."

Durham's millions of tonnes of coal reserves include coking coal, particularly suited to ironmaking.

Sahaviriya Steel Industries paid Tata Steel almost $500m for the Teesside site and pledged $300m for capital investment, including blast furnace relining and the PCI plant. SSI UK now employs 1,800 people; a further 1,500 contractors also work on site.

The Redcar blast furnace, Europe's second biggest, is currently fed by nearly 2m tonnes a year of imported Australian and North American coal, plus coke from Ukraine, Croatia and Colombia to supplement on-site coke-making.

Hargreaves, the Aim-listed coal mining and bulk materials logistics company, which is headquartered in Durham, supplies 1m tonnes of coal and will now add 700,000 tonnes for the PCI plant. This will eliminate coke imports and cut the cost of the coal it provides from $200 a tonne to around $120.

"It's a $100m per annum saving," says Mr Dryden. SSI UK's annual revenues are around $1.7bn. "It takes us from loss making to profit." The new plant will enable SSI UK to boost its annual steel slab output from 2.5m tonnes to 3.4m.

Improved performance on Teesside would help ease pressure on its Thai parent, which made losses last year and was forced into a $300m capital fundraising.

"We aren't a Corus or Tata organisation with never ending pockets; we're a family-owned business and people recognise that now," says Steve Readman, a union leader. "They have invested in us; we have to thank them for that."

Winning over people living near potential opencast mines may be a tougher challenge. John Burks, general manager of the energy and commodities division at Hargreaves, which wants to develop a site in County Durham, says: "Gaining planning consents is the barrier stopping us creating new jobs in the northeast".

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