BackCarmakers seek alternatives to UK steel as Tata looks for buyers
Tata Steel falls under pressure to secure a sale of its UK plants before it loses carmaker customerswhich make up around 60% of its UK buyers
Premium
London: Carmakers in Britain are making plans to get more steel from continental Europe, putting pressure on Tata Steel to secure a sale of its troubled UK plants before it loses customers.
India’s Tata Steel has serious offers on the table after putting its entire UK business up for sale in March to stem heavy losses, blaming costs, market weakness and cheaper imports from countries such as China.
Carmakers, which make up around 60% of Tata UK’s customers, are nevertheless making contingency plans for alternative sources for the speciality steel they need.
“If Tata fails, our purchasing teams are already working to find alternative sources in Europe," said a spokesman for General Motors-owned Vauxhall, which sources 60% of its steel from the UK.
Vauxhall and five other carmakers built almost 99% of Britain’s 1.6 million cars last year.
Honda, which sources 10% of its steel from the UK, said “there is a contingency plan in place if the situation with Tata changes". It gave no further details.
Nissan, which operates Britain’s biggest car plant in northern England, said this year it bought 45% from Tata’s Port Talbot plant, but the amount changes every year.
And Jaguar Land Rover (JLR), owned by Tata Motors, gets around 30% of its steel from Tata’s Port Talbot plant. They previously told Reuters they make their “own purchasing decisions based on the right commercial reasons".
A spokesman for BMW, which sources some steel in the UK and produces 9% of total volumes here, said “as a rule we always make sure we have more than one supplier to prevent us from becoming too dependent on any single company". He declined to comment on future supply plans.
Tata Steel acknowledged a speedy sale is crucial for both customers and employees.
“One of the reasons why we’ve been keen to conclude this process as quickly as possible is because uncertainty is not good for customers and it’s not good for employees," a Tata Steel spokesman said.
“Customers do want certainty from us and that’s one of the reasons why we’ve made clear the sales process needs to be time bound."
In the automobile industry steel customers typically work on a three-month supply arrangement, John Leech, head of automotive at KPMG, said.
“A customer can walk away quite quickly, the steel producer at any one time has only up to three months’ protection," Leech added.
Some three months after the sale process started, Tata has yet to give a shortlist of bidders, highlighting the tough market conditions the industry is facing, with cheap Chinese imports exacerbating the impact of a collapse in demand and prices following economic crisis.
“Tata is evidence that this is an increasingly global market and therefore, where cost is an issue, people who use steel will look at the affordability of UK-sourced steel, European–sourced steel and steel sourced elsewhere," said Alasdair Reisner, chief executive of the Civil Engineering Contractors Association.
“Increasing issues such as lower carbon solutions are also very important for our members and that supports UK sourcing but equally they have to be affordable against their competitors and if using UK steel means that they are not, that represents a challenge."
The UK is the fifth-largest crude steel producer in the European Union, supplying almost 11 million tonnes in 2015, and the 18th biggest in the world, according to data from the World Steel Association. Reuters
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
