Blog: Post Brexit, UK government more likely to support Port Talbot plant: Tata Steel – Mint

NEW DELHI: Tata Steel will focus on making its operations in the UK self-sustaining post Brexit, the company’s management said, even as it is in negotiations with SSAB Sweden to divest the rest of its European business in the Netherlands.

The company has said that it is in talks with the UK government to support loss-making operations at its 3 million tonne per annum (mtpa) plant in Port Talbot, southern Wales.

“It’s not that Port Talbot has never made money, it’s that it is not making enough money and not making money all the time,” TV Narendran, CEO and MD, Tata Steel, told journalists today. “A lot of work has been done over the last eight years to address the size of the problem. The strategy for the UK is to make is sustaining and (we are) in discussions to see what support we can get from the government.”

“Post Brexit, we see that UK government will be keen to revive economic activity,” he said. “The UK has some high-end manufacturing locally and steel is an important part of the value chain. Over 50-60% of the steel used in the auto and construction industry in the UK is supplied by Port Talbot and we believe the government will support this business to keep the integrity of the value chain.”

Tata Steel on Friday said it will split its subsidiary Tata Steel Europe down the middle so that it can sell its profitable division in the Netherlands to Scandinavian steel sheet maker SSAB Sweden. The deal is expected to close in six-nine months. Tata Steel has about 7.5 mtpa of steel-making capacity at its IJmuiden Steelworks in the Netherlands. Tata Steel acquired both units when it bought out Anglo-Dutch steelmaker Corus Group Plc in 2006 .

Koushik Chatterjee, executive director and chief financial officer, Tata Steel, said that the due diligence on the sale to SSAB is expected to complete by end-December, after which the company will begin negotiations on the terms and commercial value of the transaction. While he declined to give a possible valuation for the acquisition, Narendran said all proceeds will go towards repaying part of the 1.7 billion euros of long-term debt on Tata Steel Europe’s balance sheet.

After a year-long slump in operational performance, Tata Steel surprised investors last week by reporting a consolidated net profit of 1,635 crore in the September quarter, supported by Indian demand for the metal bouncing back in the three-month period. Consolidated revenue stood at 37,154 crore for the quarter, rising 7.4% year-on-year. Consolidated Ebitda (earnings before interest, tax, depreciation and amortization) surged 60% year-on-year to 6,217 crore while Ebitda/tonne rose nearly 41% to 8,396 from 5,963 in the year-ago quarter.

The company’s management said the September quarter’s performance was supported by rural demand picking up, even as urban centres continued to see economic activity lagging because of extended covid-related restrictions.

“Most products that we sell to the rural Indian market picked up faster,” Narendran said. “Consumer segments like tractors benefit from a strong rural market. Construction was slower than we expected because labour was not available on sites. But there is demand for warehousing, supply chains and auto sectors, both in passenger and commercial vehicles. Government -related spends like oil and gas, railways are also picking up. We are quite bullish for the next quarter (on steel demand),”

Renegotiated supply contracts with automobile manufacturers at 6,000 per tonne of steel will boost spreads for Tata Steel in the coming quarters.

“Consumers now are far more positive now than 3-4 months back,” Narendran said. “The government has made sure there is enough liquidity in the system is strong.” The company will take advantage of the 6322 crore production-linked incentive scheme that the union finance minister Nirmala Sitharaman has allocated for the specialty steel segment once the details of the offer are finalised, Narendran said.

Tata Steel is also simplifying its corporate structure in India, folding listed and unlisted subsidiaries into four clusters—long products, downstream, mining and utilities and infrastructure. Towards this end, Tata Metaliks and Indian Steel and Wire Products will be merged into Tata Steel Long Products, a process that will take six-nine months to conclude, depending on regulatory and shareholder consent and another six months before synergies from the new structure flow in.

“With the sponge iron and wire business together, we have a strong upstream and value-added segment in longs, There are operating synergies since both the Usha Martin acquisition and Tata Metaliks operate small blast furnaces, unlike (standalone) Tata Steel. With a stronger balance sheet, this new entity will focus on both organic and inorganic growth in the long products space.”

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