Posted on 10 Mar 2016
Hard times
Tata Steel surged to sixth place in the global steel industry in 2007 upon acquiring Anglo-Dutch steelmaker Corus for $12 billion -- an auspicious start for the Indian company in Europe. In this highly symbolic deal, the U.K. saw one of its time-honored companies acquired by a business from its former colony.
But joy was not to last. Cheap steel from China began flooding the market soon after, leaving Tata's European unit drowning in red ink. Several rounds of layoffs slashed staff from over 40,000 to around 30,000. The steelmaker is now mulling selling off its European "long products" division, which makes such products as wires and steel bars and employs more than 4,000 people. Workers are concerned that even a complete withdrawal from the U.K. could be in the cards, Harish Patel of labor union Unite said in early March.
Many are laying blame for the endless restructuring on Tata Steel's management. The company must have been capable of heading off trouble with more investment in production, Patel fumed. Yet Chinese rivals have put up a stronger showing than officials at the company anticipated.
Even Cyrus Mistry, the Tata group's notoriously media-shy chairman, was forced to admit during Tata Steel's general shareholders' meeting last August that trouble was afoot. "Low-price steel imports are the biggest threat to the viability of the steel industry in India and the U.K.," he said. "China is a big concern."
Rise and fall
ArcelorMittal, the successor to India's Mittal Steel and the world's largest producer of the metal, faces similar headwinds. CEO Lakshmi Mittal during a February conference call vented at China for its lack of progress in industry consolidation, noting that the U.S. and Japan had already done their part to cut back.
This year marks the 10th anniversary of Mittal's acquisition of Luxembourg's Arcelor, at the time the world's No. 2 steelmaker. But there is little real cause for celebration. ArcelorMittal ended 2015 at a $7.9 billion net loss, its largest ever. The influx of Chinese products sank prices 20%, forcing write-downs on inventory.
Repeated acquisitions enabled Mittal's meteoric rise, letting it grow earnings by absorbing its rivals' market share. Yet China's hesitancy to trim overcapacity has scuttled that strategy. ArcelorMittal in February said it would raise $3 billion in new capital. But the Mittal family put up $1.1 billion of that total. India's steel giant is clearly growing rusty.
