Tata briefs Indian shareholders on scale of UK losses

Tata Steel has racked up more losses in the UK than it paid to buy its plants in Europe 17 years ago, the group has told its shareholders in India.

The Kolkata-based newspaper Telegraph of India has described Port Talbot’s two blast furnaces, due to close this year, as “the last remnants of a sprawling primary steel-making operation in the UK that Tata Steel inherited when it acquired the Anglo-Dutch Corus Group Plc for £6.2bn in 2007”.

At the time of the takeover the group’s operations in the UK were spread over three principal locations — Port Talbot, Scunthorpe and Teesside — and it has managed to post profit only twice on the strength of the business.

Tata Steel UK has suffered close to £5bn in losses, excluding an exceptional non-cash gain of £1.64bn from the restructuring of the British Steel Pension Schemes (BSPS) in 2017-18.

The company has disclosed publicly that it has sunk £6.8 bn to cover losses, improvements in steel-making sites, pension restructuring costs and in capital support to service Tata Steel UK’s share of debt. In other words, it spent more to keep the UK business running than it paid to acquire the UK and Netherlands operations.

Banking crisis

In the first year of its operations – 2007-08 – Tata Steel UK posted a profit. Then came the banking crisis.

The first signs of strain were visible as early as 2009 when the company began consultation to mothball Teesside Cast Products (TCP) in the north east of England after four international buyers declined to honour agreements. The plant was mothballed at the end of February 2010 and sold to SSI of Thailand in March 2011. In the process, the company posted a profit in 2010-11 on the back of the gain from the sale.

The next wave of restructuring came in 2014 when the long product business based in Scunthorpe was hived off to a separate entity. In 2016, the Scunthorpe operations and other long products group companies were sold to Greybull Capital, reportedly for a token £1. It was then left with only one plant with primary steel-making capacity at Port Talbot. A year later, Tata Steel UK’s speciality steel and bar products business, principally located at Rotherham using an electric arc furnace (EAF), was sold to Liberty Speciality Steels Ltd.

Considering today’s situation, after being briefed by Tata, the Telegraph of India states: “The Tata Steel management believes the closure of the blast furnaces at Port Talbot and the subsequent erection of an electric arc furnace can be a game changer for the business which has been a drag on the more profitable Indian operations for years.

“The transition is expected to reverse years of losses and be environmentally sustainable as the plant will use scrap and electric as raw materials, instead of coal and iron ore, reducing Tata Steel UK’s CO2 emissions by five million tonnes per year and overall UK emissions by about 1.5%.

“The investment of £1.25bn includes a £500m grant from the UK Government and the electric arc furnace is going to be ready by 2027. In the process, Tata Steel UK’s steelmaking capacity would be at 3mt (megatonnes), down from 14.4mt at the time of acquisition.

“Tata Steel UK is hoping to be self-sufficient in raw materials use as it plans to source scrap compared to now when almost all of the raw materials for the current blast furnaces are imported. In the interim period, Tata Steel has developed plans which would enable it to secure continuity of supply through its existing downstream and steel processing sites for UK and overseas customers, utilising imported semi-finished steel including from Tata Steel plants in the Netherlands and India as well as other select strategic suppliers until the commencement of electric arc furnace production.

“In order to be able to deliver the proposed electric arc furnace in 2027, the company has begun engineering design work and construction planning. It is in advanced planning discussions with National Grid about enabling infrastructure and has also begun engagement with the local authority and regulators.”

Investing

A steel industry source in the UK told Nation.Cymru: “Given the losses Tata has made, it’s incredible that they have stayed in the UK for so long. Even now, they are investing a lot of money in a new electric arc furnace for Port Talbot which won’t come on stream for a few years.

“No one can blame the workforce for being angry at the job losses. But it would not be a good use of taxpayers’ money to keep the blast furnaces working in the short term until the electric arc furnace is built and running. A lot of the kit is close to the end of its lifespan and it would be hugely expensive to invest in new kit that would only be required for a few years.

“Times may be dark at the moment, but in the future, with a Celtic Freeport and RWE building offshore wind turbines on site, there are definitely grounds for optimism.”