Tata Steel on track to end blast furnace-based steelmaking in UK by September

Mumbai: Tata Steel is on track to end blast furnace-based steel-making in the UK by September, its top management said, as the company seeks a transition to cleaner technologies and stem losses in Europe.

However, it remains paramount for Asia’s oldest steelmaker to get the new Labour government to align with its plan, as it relies on a £500 million ( ₹5,370 crore) grant to fund the transition.

“In (the) UK, we have safely ceased operations at one of the blast furnaces (BF #5) at Port Talbot and are on track to close the remaining blast furnace by September 2024,” T.V. Narendran, the managing director of Tata Steel, said Wednesday in a press statement. His comments came as the company declared its first-quarter (April-June) earnings, where profits surged due to lower losses in Europe.

The closure of the blast furnaces and associated assets was critical to arresting the cash burn at the UK operations, company chief financial officer Koushik Chatterjee said. Tata Steel UK has two blast furnaces in total.

“We are working closely with the recently-elected UK government on finalization of grant funding process for the new electric arc furnace project,” Chatterjee said in the statement.

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The issue stems from the high inherent costs involved with steelmaking in the UK. These include expensive utilities, the high cost of importing coking coal that runs the blast furnaces, and the environmental levies associated with the emissions that steelmaking generates.

Tata Steel threatened to pull the plug on Port Talbot steelworks if the UK government did not bear a part of the cost to fund a transition to electric arc furnace-based steelmaking. These electric furnaces are less polluting and cheaper to run, partly because they need fewer people to operate.

The company reached an agreement with the previous Rishi Sunak-led Tory government, for a £500 million grant to fund the £1.25 billion transition. However, before the money could change hands, the government in the UK changed, with the Labour Party securing a landslide victory earlier this month.

The Labour government wants Tata Steel to promise job guarantees.

“I'm going to make sure that job guarantees are part of the negotiation that we're having,” Jonathan Reynolds, the UK government's new business secretary, said, as reported by the BBC.

Tata Steel is holding similar discussions with the Dutch government to secure a grant for funding its decarbonization journey in the Netherlands, Chatterjee said.

Europe losses narrow, Neelachal shines

Tata Steel on Wednesday reported a 75% year-on-year surge in its consolidated profit for the quarter ended 30 June to ₹919 crore.

The consolidated revenue for the quarter was 8% lower, compared to last year, at ₹54,771 crore, largely due to lower realizations. Steel prices have been tepid globally due to lower demand and oversupply from China.

However, lower losses in its European operations and better performance at the recently acquired Neelachal Ispat Nigam helped Tata Steel shore up its consolidated margins.

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Consolidated earnings before interest, tax, depreciation and amortization (Ebitda) grew 25% on-year to ₹6,694 crore. Ebitda margin improved 323 basis points to 12.2%. One basis point is 0.01%.

“During the quarter, subdued steel demand across most regions weighed on global steel prices. In India, steel demand was broadly stable despite some impact due to elections and heat waves,” Narendran said.

The company produced 5.3 million tonnes of steel in India, which was 5% higher year-on-year. Sales at around 4.9 million tonnes were the highest ever for the first fiscal quarter for the company. The growth was led by the automotive market, Narendran said, amid a rush for new cars in India.

Investment in Neelachal

Tata Steel will be investing ₹6,000 crore in Neelachal this fiscal year to fund capacity expansion. Acquired two years ago, the plant plugged a crucial shortfall in Tata Steel’s portfolio to manufacture long products. These are slender formations of steel, as opposed to flat sheets, and are used to make steel rods, bars and wires.

Tata Steel plans to take up the capacity of this plant from 1 million tonnes a year to 5 million tonnes and eventually 10 million tonnes a year.

Tata Steel shares ended 0.79% higher on the BSE on Wednesday at ₹165.35 apiece. The benchmark Sensex gained 0.35%.

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