Posted on 31 Mar 2016
Global oversupply, high manufacturing costs and rising steel exports mean trading conditions in the United Kingdom and Europe had “rapidly deteriorated,” Mumbai-based Tata Steel said in a statement.
Tata Steel Europe’s board would “explore all options for portfolio restructuring,” including a potential divestment of the UK unit, the producer said.
Tata’s UK assets, once controlled by state-owned British Steel and bought for US$12bil a decade ago, include the giant Port Talbot works in South Wales. The risk of losing thousands of industrial jobs in an economically deprived region will put pressure on David Cameron’s government to ensure it remains a going concern.
The government wouldn’t rule out temporary state control as a way to ensure sufficient time for a buyer to be found, UK business minister, Anna Soubry, said in a BBC radio interview. “We are and have and continue to look at all options and I do mean all options,” Soubry said. We “want to see steel being made at Port Talbot”
European mills are struggling to contend with a flood of cheap steel exports from China, which accounts for about half of global output, boosting competition and eroding profits worldwide. Tata Steel closed plants and cut jobs in the United Kingdom last year as China’s exports surged to an all-time high, while local producers contended with sinking domestic prices and a glut of material.
“It comes back to just how tough the steel market is,” Sydney-based Morningstar Inc analyst Mathew Hodge said by phone. “Some of those guys through the acquisitions were leading the charge, but it’s cyclical and low margin and high capex. Aggressive consolidators can become unstuck.”
Tata Steel’s 2007 agreement to acquire Corus Group Plc, its largest ever acquisition, signalled an effort to boost Indian manufacturing and build global scale. A three-month takeover race saw Tata raise its offer by more than a third. The purchase followed the about US$38bil takeover of Arcelor SA a year earlier by Mittal Steel Co, founded by Indian billionaire Lakshmi Mittal.
A review of Tata’s UK strip products unit, centred on Port Talbot, concluded planned restructuring proposals were unaffordable, the producer said in the statement.
“It is vitally important that Tata is a responsible seller of its businesses and provides sufficient time to find new ownership,” Roy Rickhuss, general secretary of the steelworkers’ UK union Community, said in a statement.
Tata Steel was continuing discussions with Greybull Capital LLP over a potential sale of its UK long products business and also holding talks with the UK government, it said. That agreement covers Scunthorpe steelworks in England as well as mills in Teesside and northern France.
