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Kolkata, Nov. 5 Tata Steel stock witnessed a sharp fall of over 10 per cent as ArcelorMittal’s guidance for the current quarter painted a bleaker picture than expected and market participants took a dimmer view of Corus earnings for the quarter to September 30, 2008 before it was announced.

Slowing global demand has compelled Tata Steel to cut steel production at its Corus units in the UK and the Netherlands. Corus, Europe’s second-largest steel producer, has decided to reduce its crude steel production over the next three months by up to 20 per cent or around 1 million tonnes, “to mitigate the effects of the softening near-term steel demand outlook.” Corus operations account for 74 per cent of Tata Steel’s income. Tata Steel Q2 results did not include Corus numbers, which are expected shortly.

Mr Lakshmi N. Mittal, Chairman and CEO of ArcelorMittal, said in a statement on Wednesday that it was “appropriate to pause our growth strategy until we have a more settled economic outlook”. ArcelorMittal has given EBIDTA guidance in the range of $2.5-$3 billion for October-December against actual EBIDTA of $8.6 billion in June-September.

The price of steel has been falling in the past three months on fears that a global slowdown will lead to lower demand. Standard & Poor’s Ratings Services last month had revised its rating outlook on Tata Steel UK Ltd, the holding company of Corus, to stable from positive.

“The change in outlook reflects the more challenging operating conditions now facing Tata Steel UK (Corus), as a result of the likely deterioration in demand in Europe and the UK in the next 18 months, with declining steel prices and reduced production volumes,” said Mr Ivan Palacios, lead Moody’s analyst for Tata Steel, while downgrading the agency’s rating in the third week of October to negative from stable.

Tata Steel’s rating by Moody’s is still two notches higher than the rating of its UK subsidiary, reflecting its stronger business and financial risk profiles, primarily as a result of the sound profitability of its domestic operations. Tata Steel is also facing a global downturn for steel as prices in the domestic market has fallen significantly in the last few months.

SAIL, JSW, Essar Steel have cut prices of steel by Rs 4,000-Rs 6,000 a tonne on fear of dumping of steel from countries such as China and Ukraine coupled with weak demand. The prices of HRC, after the cut, have come down to Rs 31,000-Rs 32,000 a tonne. The Government recently withdrew export duty on certain steel products such as pig iron, iron and steel ingots, bars, rods, angles, shapes and sections. Global crude steel production sank 3.2 per cent in September to 108.4 mt, according to the World Steel Association.

According to Ms Vasundhara Karwa of Microsec, Arcelor Mittal guidance has raised concern about the earnings growth for Corus. Concerns were also expressed over the falling portfolio valuations of Corus’ pension fund.

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