Tata Steel UK’s two-stage transition plan promises historic turnaround

Tata Steel is preparing to implement a two-stage transformation at its UK subsidiary over the next two years, aiming to relaunch operations with a focus on green steel production. The first phase centres on achieving positive EBITDA by reducing fixed costs by £222 million in FY26. The second phase involves commissioning a 3.2 million tonne per annum (MTPA) electric arc furnace (EAF) in 2027, marking a major shift in its steelmaking process.

In FY25, Tata Steel UK (TSUK) successfully lowered its fixed costs to £762 million from £995 million the previous year. The company now aims to bring this down further to £540 million in the current fiscal. Following the closure of its two blast furnaces at Port Talbot, TSUK has transitioned to a downstream model, relying on imported steel substrates—primarily slabs—from India, the Netherlands, and other sources.

Cost optimisation efforts include streamlining substrate procurement, upgrading IT infrastructure, rationalizing downstream operations, and eliminating corporate overheads. Despite these reductions, TSUK has maintained delivery volumes at 2.5 MT.

“During the EAF project phase, TSUK will work intensively to ensure uninterrupted and reliable product supply to meet customer and market commitments, including through additional imports of steel substrate from stable and responsible supply chains,” the company stated in its latest annual report.

The EAF project is backed by the UK government, which will contribute 40% of the funding—amounting to £500 million. Tata Steel will cover the remaining 60%, bringing the total investment to £1.25 billion. Planning approval for the Port Talbot EAF facility has been secured, and construction began in July 2025. Once completed, it will be the UK’s largest low-carbon steelmaking plant.

For over a century, Port Talbot’s towering blast furnaces produced steel using coal. However, the company concluded that reviving the coal-based infrastructure was unfeasible. The ageing assets—including blast furnaces and coke ovens—had reached the end of their operational life, prompting the shift to EAF technology, which uses scrap as the primary input. The energy systems at Port Talbot have also been decommissioned.

On September 11, 2024, Tata Steel signed a £500 million Grant Funding Agreement with the UK Government to support the installation of the EAF at Port Talbot. The new facility is expected to cut on-site carbon emissions by up to 90%, reducing approximately 5 million tonnes of CO₂ annually—or 50 million tonnes over a decade—while promoting scrap recycling and green steel production.

Tata Steel also plans to address potential employment impacts and reskilling needs for the local workforce and supply chain ahead of the EAF commissioning.

Addressing the shareholders at Tata Steel’s annual general meeting in July, Tata Sons chairman N Chandrasekaran, who also chairs the steelmaker, said the aim was for the UK operations to achieve net profitability in FY26. “I feel that UK should be PAT (profit after tax) positive,” he said. “We expect UK this year to perform much better than last year and it will definitely be EBITDA positive,” he added.

In Q1FY26, TSUK reported revenues of £536 million and an EBITDA loss of £41 million, a significant improvement from the £80 million loss in Q4FY25. Although deliveries were slightly lower due to subdued demand, EBITDA improved by £58 per tonne quarter-on-quarter.