Tata Steel to cut costs, focus on value products in UK units

Up to 1,500 jobs in Tata Steel's operations in the north east of England could go as a result of a major overhaul of the company's long products division announced on Friday.

As a result of the ongoing significant losses in that division, which produces products, including for the construction industry, Tata Steel said it would be restructuring the business by cutting costs. It will focus on the value end of the market and improving its ability to respond quickly to shifts in demand. “No company can sustain this level of losses,” said Mr Karl-Ulrich Koehler, Managing Director of Tata Steel's European operations.

The strategy includes a proposal to close or mothball parts of the Scunthorpe plant and put at risk 1,200 jobs at Scunthorpe and 300 jobs at its Teeside sites, the company said in a statement on Friday. In Scunthorpe, the Bloom and Billet Mill could be closed, while its Queen Bess blast furnace and Billet Caster could be mothballed in readiness for an upturn in demand. All decisions will be made in consultation with the unions and after ‘very careful' scrutiny of the division's business performance, Mr Koehler said. While the company could not assure that there wouldn't be compulsory redundancies, every effort would be made to achieve the restructuring through a voluntary process, Tata Steel said.

High value areas

The company will not be reducing its product line, Mr Koehler said. It is the second major overhaul that Tata Steel has announced since the financial crisis struck.

Back in 2009, the company launched a competitiveness drive, which involved a major overhaul of its then loss-making Speciality Steels business, where demand had fallen by nearly three quarters. The overhaul proved a success, and the division was restored to profitability as it began focusing on high value-added areas such as remelted steels for the aerospace industry and exiting mid-tier products.

“We turned it around by acting decisively,” said Mr Koehler on a conference call. That experience was now being used in developing the strategy for the rest of the long products business, he said. The restructuring is already under way, and the impact would begin to be felt in the next year, he added.

A significant part of the produce of Tata Steel's long business serves Britain's long-suffering construction industry. Private and public sector investment in construction infrastructure have stayed well below pre-crisis levels. “The recovery of the construction industry in the UK is perhaps the slowest in Europe,” says Mr Chris Houlden, Principal Consultant of the steel team at metal and mining consultancy CRU.

Pricing pressure

“Pricing pressure in Europe is still very intense, at the same time, raw material prices are very high so there is a huge squeeze on steel maker margins, when coupled with low demand and growth rates it makes conditions very challenging,” Mr Houlden added.

Mr Koehler warned of other challenges, including new emissions taxes that will be brought in at an EU level next year. These could have a ‘potentially devastating' effect on the competitiveness of the European steel industry, he said. Those located in Britain would face a ‘double whammy' with the coalition government's plans to introduce a carbon price floor, an additional level on coal, oil, gas and other carbon based fuels used to generate electricity for industries.

As part of the restructuring, Tata Steel says it will invest £400 million over the next five years. The investment would go towards improving the reliability of equipment, and energy saving measures.

The restructuring announcement received a measured response from unions. “The key now is for the company to engage the local trade unions in consultation on the way forward,” said Mr Michael Leahy, General Secretary of the steel union, Community. “We will be seeking an early meeting to explore all possible means of avoiding any compulsory redundancies.”

Back in March, Tata Steel sold $469 million worth of assets at its Teeside Cast Products plant to Thai firm Sahaviriya Steel Industries, following a two-year search for a buyer.

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