Tata Steel UK looks to build electric arc furnaces at Port Talbot in South Wales to switch its production to recycling scrap steel. The loss-making subsidiary of the Indian steel producer has been in discussion with the U.K. government for financial support to switch to less carbon-intensive steelmaking. The company produces about 3-4 million tonne (MT) of steel in the U.K.

“We believe that the best way to make steel in the UK is to leverage the scrap,” says TV Narendran, managing director and CEO, Tata Steel. Recycling scrap is a long-term sustainable business.  But procuring scrap is typically 70% of the cost in recycling. The advantage for Tata Steel in the U.K. is the availability of scrap. The European nation is one of the biggest exporters of scrap. “We will maintain the 3MT capacity after switching to recycling,” Narendran says.

Tata Steel believes the U.K. business is fragile. “We have a lot of old assets at Port Talbot site. We need to spend a lot of money to keep it running. UK business is not generating enough cash to reinvest. We have supported it for the last 15 years. We've reached a stage to seek government support to transition it into a sustainable business. We can transform this business into a more green process, which will help the UK government also to reduce its carbon footprint,” he says.

“We have so far demonstrated our credentials and commitment by supporting the UK business significantly. We have already made our submission to the government to start a meaningful discussion. We need to quickly take a call,” he says.

Tata Steel is expected to build two electric arc furnaces at Port Talbot after closing down the blast furnaces which are used to make primary steel. The electric arc furnaces, which are used to recycle scrap steel, are expected to cost around 3 billion pounds, with Tata Steel seeking 1.5 billion pounds from the government, according to recent reports from the U.K. The workers' unions have also communicated to the government as they foresee the threat of plant closure.

Tata Group chairman N Chandrasekaran also recently warned about the closure of plants in the UK without the support of British government. Tata Steel, which owns U.K.'s largest steelworks at Port Talbot in South Wales, employs around 8,000 people. The steelmaker has been in discussions with the UK government over the last two years and aims to conclude an agreement in this financial year.

In October 2021, Tata Steel completed the process of separating Tata Steel UK and Tata Steel Netherlands as two independent companies. The Netherlands business has always been strong, says Narendran. “But the strength of the Netherlands business was not visible as it was part of Tata Steel Europe.  It is one of the ideally located steel plants in Europe with high efficiency. We want to continue the Netherlands business as it is. The only transition there will be the switch to greener fuels--- from coal to gas to hydrogen,” he says.

Tata Steel’s European operations delivered better performance in the last financial year, thanks to the transformation programme undertaken by the company. The EBITDA in FY22 — at £1.2 billion (₹12,164 crore) — was the highest ever since Tata Steel's £6.2-billion acquisition of Corus in 2007. It has pursued several initiatives for reducing procurement and supply chain costs and increasing efficiency. It continued investing in technology and digitisation to drive productivity and improve resilience. The benefit of the transformation programme from the UK business comes to ₹877 crore in the last financial year. The Netherlands business benefited ₹811 crore.

Naredran says the cost of energy in the U.K. increased significantly after the Russia-Ukraine war. “The U.K. government needs to look at the energy costs, which was twice that of the cost in Europe even before the Russia-Ukraine war,” he says. In August, the energy cost was three times what Tata Steel UK normally pays. It has gone up significantly in the last few days.

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