Mumbai: An assault on costs at its European subsidiary Corus has started yielding dividends for Tata Steel Ltd.
“The rate at which we are going today, we believe the saving (in Corus operations) will be in excess of £800 million or $1.2 billion,” Tata Steel managing director B. Muthuraman said at a media briefing after the firm announced its June quarter results for its domestic operations. Net profit declined to Rs789.83 crore, 47% down from a year ago.
Tata Steel bought the Anglo-Dutch steel maker in 2007 for $13 billion in a debt-laden deal, but was hit by the global recession and the collapse of steel prices soon after. In October-November, the firm launched two restructuring programmes —‘Weathering The Storm’ and ‘Fit For The Future I and II’—to stabilize the Corus operations.
Muthuraman said the savings from ‘Weathering The Storm’ are ahead of schedule. Some $450 million has been saved after Corus’ workforce was cut by one-fifth and through the use of lower quality ‘raw material’. Other steel makers such as ArcelorMittal have also announced brutal restructuring.
Corus has struggled to keep its blast furnaces on fire. Two furnaces in the Netherlands will restart soon.
Muthuraman said capacity utilization at the Corus plants is now at 53%, will rise to 65% by the September quarter, and then to 75% in the December quarter. The last quarter of this fiscal year could see Corus increasing capacity utilization to 85%. “On an average, we expect to finish the year with a capacity utilization of 70%,” he said.
‘Fit For The Future’ focuses on long-term measures. “We expect this to yield £300 million every year on a continuous basis,” Muthuraman said.
A July report by CLSA Asia-Pacific Markets analysts Abhijeet Naik and Alok Rawat said: “Tata Steel’s aggressive cost-cutting measures in Europe will ensure that Corus will emerge from the current downturn with a far-improved cost structure. While the restructuring charges will keep FY10 profits under pressure, we see a sharp profit recovery in FY11 and FY 12.”
Muthuraman has been devoting some time to the European operations, which will be consolidated later with Tata Steel’s Indian operations and in all probability will pull down the company’s consolidated profits for the quarter.
Much also depends on how soon steel demand and prices recover.
“The average steel demand globally on a year-on-year basis for the quarter April-June is down 30-35%. In the US, demand for steel is down 50%, in Europe demand declined by about 40-45%, but India and China have bucked the trend,” said Muthuraman. But Corus CEO Kirby Adams told the Financial Times that it “could be three-five years” before world steel consumption returns to the high levels of 2007-08.