Market Segment

Tata Steel to Pull Out of UK

March 31, 2016

Tata Steel announced yesterday that it will consider selling off all of its British operations. In a review of its UK operations, the Tata Steel Board concluded that due to deteriorating financial performance in the past twelve months the company will “explore all options for portfolio restructuring including the potential divestment of Tata Steel UK, in whole or in parts.”

Tata Steel said that in the past five years the company has suffered more than £2 billion ($2.87 billion) in impairment charges for the UK business.

“While the global steel demand, especially in developed markets like Europe has remained muted following the financial crisis of 2008,” said Tata Steel in its press release, “trading conditions in the UK and Europe have rapidly deteriorated more recently, due to structural factors including global oversupply of steel, significant increase in third country exports into Europe, high manufacturing costs, continued weakness in domestic market demand in steel and a volatile currency.”

The Tata Steel Board also reviewed the proposed restructuring plan for Strip Products UK at Port Talbot and concluded the capital outlay and risk made the plan unsupportable.

Tata Steel said it has been in “deep engagement with the UK Government in recent months seeking its support to achieve the best possible outcome for the UK business.”

Last week Tata Steel UK announced it had reached an agreement to sell its Scottish plate producers, Clydebridge and Dalzell, to the government of Scotland which will then sell them to Liberty House. Tata Steel is negotiating the sale of the rest of its Long Products Europe business to Graybull Capital.

The sale of the UK assets will affect about 15,000 workers and has resulted in widespread calls for government intervention to save the British steel industry. The Port Talbot steel plant, the largest in Britain, employs about 7,000 steelworkers.

“It is essential that the Government intervenes to maintain steel production in Port Talbot, both for the workforce and the wider economy, if necessary by taking a public stake in the industry,” said Labour party leader Jeremy Corbyn.

UK crude steel production fell 18 percent from 2005 to 2015, according to the World Steel Association. In 2015, steel production was 10.9 million tonnes , down from 12.1 million tonnes in 2014.

The British government said it is considering “all options” and will work with Tata Steel to find a solution.

“I don’t think nationalisation is going to be the solution because I think everyone would want a long-term viable solution. And if you look around Europe and elsewhere I think nationalisation is rarely the answer, particularly if you take into account the big challenges the industry faces,” said UK Business Secretary Sajid Javid.