Rises in the cost of steel have been a blessing and a curse for manufacturers in the region. Business correspondent Paul Willis reports.

THE unstoppable rise of China as a major financial power is without doubt the global economic success story of the past two decades.

While other economies struggle with increasing oil shortages and a collapse in their manufacturing base, China's tiger economy has grown at a frightening pace.

One of the consequences of the country's rapid industrialisation has been a thirst for steel - China now accounts for a third of global steel demand.

Not surprisingly, this has sent the cost of steel rocketing, doubling its price in the past year alone.

This has had consequences around the world, including in the North-East, a region still underpinned by a significant manufacturing sector.

In the past six weeks, two companies have gone into administration and a third was forced to cut staff.

All three cited the global rise in steel prices for their financial difficulties.

In all, it looks as if about 300 manufacturing jobs in the region will be gone by Christmas because of the knock-on effect of a rise in steel prices.

Car parts manufacturer Presswork Metals ran into trouble at the beginning of last month.

Administrators were called to the firm's plant at Newton Aycliffe, and a month-long battle began to save the company.

Two of its customers had pulled out, leaving a gaping hole in Presswork's order book and, despite efforts to find a buyer, administrators were forced to begin winding up the business last week.

Presswork is expected to close by Christmas, with the loss of about 240 jobs.

According to administrators Grant Thornton, the company was cornered not only by the rise in steel prices, but because it found it difficult to pass on the increases to customers in the automotive industry.

Adrian Storrie, a manager at Grant Thornton, said rapid rises in steel prices had caught the manufacturer by surprise.

Mr Storrie said: "The main raw material used by the company is steel, so it has obviously been a major issue. What happened in the case of Presswork was that by the time it had renegotiated with its customers to compensate for the rises in price, steel prices had gone up again.

"In what is a very competitive market, it is then very difficult to go back to those customers and ask them to put up prices yet again."

County Durham firm Kenmore Refrigeration made 17 of its workers redundant recently, also citing the high cost of steel.

Teesside manufacturer Lionweld Kennedy went into administration in the same week as Presswork, with the loss of 37 jobs.

The company, which manufactures handrails and steel floors, has subsequently been bought by West Midlands group Hill and Smith, securing about 200 jobs.

However, the acquisition of Lionweld did not include the contracting business, which administrators said had contributed to the firm's financial woes because of its fixed-term contracts with customers.

Tony Cockerill, Professor of Economics at the University of Durham's business school, said steel prices had left manufacturers in a difficult position.

Professor Cockerill said: "The problem comes when you can't pass on price rises. Companies in high-tech specialist industries are more flexible, but if the manufacturer is operating in a highly competitive market, like the car industry, it is a different story.

"If they start trying to up the price, then the market is diverse enough for the customer to simply go elsewhere."

But China's surging demand for steel has been a godsend for at least one North-East manufacturer.

The rehabilitation of steelmaker Corus has been a revelation. The company, which employs nearly 3,000 people in the area, brought a halt to five years of losses when it declared pre-tax profits of £163m in September this year.

Formed five years ago from the merger of British Steel and Dutch company Hoogovens, the steel producer has raised prices a number of times already and is planning to put them up again at the start of next year.

All this from a company that was staring extinction in the face after shedding thousands of jobs and suffering record losses totalling £1bn.

However, Corus spokesman Mike Hitchcock said that rather than sending prices rocketing, the unprecedented situation in China had brought about a return to normality.

Mr Hitchcock said: "This situation has helped to even-up what had been a 20-year low in steel prices. Since the start of the 1980s, the cost of steel had dropped through the floor. So in real terms, the cost right now is not yet back to the level before prices crashed."

He said that profits from price increases for Corus had been offset by a doubling in the cost of shipping and a 20 per cent rise in raw material costs, also fuelled by the Chinese market.

He said: "The effect of China's growth has been massive across the board. Of course, it would be wrong to suggest it hasn't helped us a great deal, but by the same token, we have done a lot to help ourselves."

But Corus, as a steel producer rather than a steel consumer, is atypical. For most manufacturers in the region, a rise in the price of steel spells trouble.

Prof Cockerill said that though Chinese demand was likely to wane in the next few years, the problems facing the region were symptomatic of its over-reliance on manufacturing.

He said: "We have to accept that though labour costs are lower in the North-East than other parts of the country, when it comes to labour-intensive industries, we are never going to be able to compete with factories in Eastern Europe or in Asia.

"If there is a lesson to be learnt here, it is that we need to look at developing more high-skilled, technology-based industries where raw material costs can be more easily passed on."