Tata Steel to press ahead with cost cuts

The TATA steel plant in Scunthorpe, northern England.

The TATA steel plant in Scunthorpe, northern England.

Tata Steel Ltd, Europe’s second-largest steel producer, said on Thursday it will press ahead with cost cuts and restructuring to cope with a surge in cheap Chinese exports to Europe and India, its two key markets.

Tata, which posted a surprise 22 percent rise in second-quarter net profit after selling some non-essential holdings, is trying to revive its struggling British operation and has cut thousands of jobs since buying Anglo-Dutch Corus in 2007.

“We have seen huge pressure on (steel) prices ongoing and the strong pound has exasperated the point,” Karl-Ulrich Koehler, CEO of Tata Steel in Europe, told reporters. “Our focus on cost reductions and restructuring will have to continue.”

Koehler said Tata would look at all options for its European long products business.

The crisis in Britain’s steel sector escalated last week as Tata Steel blamed its decision to cut British jobs on a flood of cheap imports, particularly from China, as well as tumbling steel prices.

Net profit at Tata Steel, a division of a hotels-to-automobiles conglomerate, rose to Rs.15.29 billion ($232.9 million) on a consolidated basis in the quarter ended Sept. 30 from Rs.12.54 billion a year earlier. Analysts had forecast a net profit of Rs.11.8 billion, according to data compiled by Thomson Reuters.

Tata’s profit was boosted by Rs.28 billion earned from the sale of quoted investments during the quarter, including part of its stake in Tata Motors.

Tata also said the “rapid and sharp deterioration” in the British business environment had forced it to take a non-cash charge in the period which, together with restructuring charges and other provisions, totaled Rs.87 billion.

China makes nearly half the world’s 1.6 billion tons of steel. With growth slowing at home, it is expected to export a record 100 million tons to world markets this year to help address its spare steel making capacity.

India imposed a 20 percent import tax on some steel products in September to mitigate the damage to domestic companies.

Despite this, steel prices in India will remain under pressure until there is a “meaningful uptick” in demand in Asia’s third-largest economy, said T.V. Narendran, Tata Steel’s managing director for India and Southeast Asia.

Shares in Tata Steel have lost more than 40 percent this year and closed down 4.25 percent on Thursday before the results announcement. Mumbai‘s wider market fell 0.94 percent.


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