BRITISH Steel's first-half results are stunning with pre-tax profits

soaring from #27m to #159m and would have been very much better had

prices not been held down in Europe by unfair competition.

Overall turnover rose 12% to #2197m with volume and price contributing

equally.

Sales in the UK improved just 6% to #991m on the core steel mill

operations thanks in part to a change in mix towards lower margin hot

rolled products. The impetus came more from Europe where there was a

near-25% advance because of buoyant exports.

Chairman Brian Moffat said yesterday that BS is now operating at about

95% capacity in its mainstream products and that it would soon run up

against capacity constraints. Asked whether he regretted earlier plant

closures, he riposted that even at current prices Ravenscraig would

still be unprofitable.

He also indicated that the company would not be spending substantially

on new plant in the UK for at least the next three years. That points to

there being little likelihood of a new #400m plate mill being built on

Teeside to replace both Dalzell and Scunthorpe for the foreseeable

future, particularly while ''plate business is quite profitable and the

plate market has not developed as people had thought''.

Predictably, he sounded off against the subsidies being paid to

Italian, Spanish and east German producers who are prepared to sell the

steel at a loss, safe in the knowledge the state will pick up the bill.

Some #5000m has been spent on five million tonnes of unproductive

capacity which has driven down prices and made it uneconomic for the

efficient private sector companies to invest in Europe.

The EC Commission has thrown in the towel on reducing this chronic

over-capacity and so BS is taking legal action for the mis-use of state

aid in an attempt to stop further subsidy and looks for the effective

backing of the British Government.

Prices are currently about 10% below the levels seen at the peak in

1989 and German producers are set to close the gap soon which would be

beneficial to BS helped by the strength of the Deutschmark against

sterling. But the impact of subsidy can be measured with US hot rolled

steel prices some 15% higher than those in Europe. So BS is spending

#97m on a major investment at Tuscaloosa in Alabama and is considering

another significant development in Florida.

It is also looking for a joint venture partner in South-east Asia

which will buy 850,000 tonnes of BS structural steel this year out of

total output of about 12.2 million tonnes.

There has been a major turnround at the now 49.9%-owned Avesta

Sheffield stainless steel associate and to a lesser degree at the not

yet fully efficient United Engineering Steels where partner GKN may be

seeking to sell.

Together they contributed #49m of the #132m profits improvement and

are set to do significantly better in the current six months.

Full-year profits could leap from #80m, after a #24m provision for an

EC fine for alleged anti-competive practices to about #470m. That would

leave the shares at 159[1/2]p trading at 10 times fully-taxed earnings

and a ratio that could halve perhaps a couple of years later as the

company pushes towards the #1000m mark.

The interim dividend has quadrupled to 2p and a full-year total of

perhaps 7p is likely for a 5.5% yield.