Global oversupply, high manufacturing costs and rising steel exports mean trading conditions in the UK and Europe have “rapidly deteriorated,” Mumbai-based Tata Steel said in a statement reported by Bloomberg. Tata Steel Europe’s board will “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 $12 billion a decade ago, include the giant Port Talbot works in South Wales.
Bloomberg reports how 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 UK 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.
Tata Steel’s 2007 agreement to acquire Corus Group, 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 $38 billion 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.
Bloomberg reports that Tata Steel is continuing discussions with Greybull Capital LLP over a potential sale of its UK long products business, and the company said in a statement that it is also holding talks with the UK government.
Tata Steel is seeking to pare debt by selling loss-making units in the UK The company announced 1,050 job cuts in the country in January, and last week reached an agreement to sell its Clydebridge and Dalzell plants in Scotland to the Scottish government, which will then sell them on to Liberty House, a private company.
With a current market value of about $4.5 billion, Tata Steel has crude steel production capacity in the U.K. of about 11 million metric tons a year, according to its website.
“Given the severity of the funding requirement in the foreseeable future, the Tata Steel Europe board will be advised to evaluate and implement the most feasible option in a time bound manner,” the producer said in its statement dated Tuesday, March 29. The UK business has suffered asset impairments of £2 billion ($2.9 billion) in the past five years.
In February, Tata Steel reported a fiscal third-quarter loss of 21.3 billion rupees ($320 million), versus a profit of 1.57 billion rupees a year earlier, as rising imports pressured prices. Global oversupply and an increase in exports to Europe are factors that are likely to continue into the future and have significantly impacted the long-term competitive position of the UK operations, Tata Steel said in its statement.
