‘Tata Steel UK’s future is at risk without govt support’4 min read . Updated: 19 Nov 2020, 07:13 AM IST
- Port Talbot is among the best steel assets in the UK. Despite that, it has its own challenges, both structurally and operationally, says T.V. Narendran, MD and CEO, Tata Steel
Besides announcing its strong operational performance for Q2, Tata Steel on Friday also said that it was in talks with SSAB Sweden to sell IJmuiden Steelworks, surprising investors considering that the Netherlands unit was profitable. In fact, investors were keen on a solution to the firm’s plant in Port Talbot, UK, as it frequently reports operating losses. In an interview, T.V. Narendran, MD and CEO, Tata Steel, sheds light on the solutions for its European business. Edited excerpts:
What is your European strategy? Post-Brexit, will you be better placed for negotiations with the UK government?
When we look at our European strategy, in the Netherlands, there’s an interested buyer and it will help us deleverage while giving the asset a long-term future as part of a group that’s focused on technology and product in the Europe. Over the years, our UK footprint has shrunk from 10 million tonnes per annum to 3 mtpa. Port Talbot is among the best steel assets in the UK, but despite that, it has its own challenges, both structurally and operationally. (For instance), in the UK, energy costs are much higher. Because of these reasons, we have struggled in the UK despite our best efforts. We have now come close to a position where the business can be cash-neutral and we are in conversation with the government. We believe that as a shareholder, we have done a lot over the last 10-12 years. We have not gone to the government in the past. But we have reached the stage where unless there is government support, the long-term future of the site will always be at risk. Port Talbot is important for the manufacturing ecosystem in the UK. This site produces a lot of steel for the auto, construction and packaging industries in the UK.
In your negotiations with the UK government, are you looking for an equity investment or operational benefits, such as lower power costs?
This again depends on what the government is willing to do. If the government only wants to do something from the outside, then energy costs, etc., are a good place to start, but if it is willing to support us financially, then we can explore all possibilities. The separation between Tata Steel UK and Tata Steel Netherlands (from the current Tata Steel Europe) as two operating companies will help explore all possibilities for government engagement in Tata Steel UK.
Will Tata Steel give up on Port Talbot at some point, if you feel that the drain on the balance sheet may not be worth it?
All options are on the table, but first we’d like to complete the conversation with the UK government before we decide what to do.
This year has been difficult for secondary steel makers in India, while larger players like Tata Steel have bounced back. Will this lead to a fundamental change in the domestic steel market in favour of larger integrated players?
Large Indian players had the export markets to go to. Smaller producers are more local. So, JSW, JSPL, Tata Steel, AM/NS, SAIL, we exported our way through May-July. It was only in August that the domestic business started showing more volumes. At Tata Steel, 50% of production was exported in Q1, 25% in Q2 and maybe 10-12% in Q3. Secondary players can’t do that. Besides, the iron ore mine auctions in Odisha disturbed iron ore supply in eastern India because after the mines transferred hands, they have not reached full production levels. This impacts smaller players more. (Iron ore) pellet prices are strong, so those are being exported, too. So, secondary players were impacted by limited market options, iron ore constraints, working capital and labour issues. Besides, they focus on long products, and the market is slow during the monsoon.
In India, flat steel is already consolidated with large players and this is true globally, while long products are dominated by small electric arc furnaces. Over a period, there will be distributed production of long products using the scrap and electric arc furnace route as energy costs come down and availability of scrap improves. So, there is no unique value a big player can bring in operating small furnaces. There is space in the market for secondary players and that will continue.
What are your reasons for consolidating the long steels business within Tata Steel?
We are creating a cluster around Tata Steel long products; this happened after Tata Sponge picked up Usha Martin, which is a long steels business. By merging Tata Metalikes and Indian Steel and Wire Products, we are making a stronger company, better balance sheet, bigger footprint and setting it up for growth in long, distributed production, mini blast furnaces… all these options exist. We will keep it separate from the parent, which is more of a flat steel player.