Tata Steel to proceed with £1.25 bn investment in Port Talbot

Steel major Tata Steel has announced it'll proceed with its £1.25 billion investment to build a state-of-the-art electric arc furnace in Port Talbot and start closure of the existing heavy end assets in the following months. This decision comes after the closure of two blast furnaces earlier this year, a move that significantly impacted Port Talbot and the local unions.

The plan involves replacing the blast furnaces, which produce molten iron from iron ore, with electric arc furnaces. Tata Steel intends to initiate orders for the furnace equipment by September and commence construction by August 2025.

Amid this development, shares of Tata Steel surged as much 1.8% to ₹168.40 apiece on BSE, reaching a 52-week high today.

Tata Steel, in an exchange filing, says, “Following its 19 January 2024 proposal to restructure the UK business and 7 months of formal and informal discussions with the UK Steel Committee (the multi-union forum) and its advisers, Tata Steel has today announced its decision, paving the way for a major transformation of Britain’s largest steel plant at Port Talbot, in south Wales.”

Tata Steel says this investment will mark the most substantial investment in British steel production in many years, ensuring its stability for the long run, protecting 5,000 jobs directly within Tata Steel, generating additional employment in engineering and construction, and cutting CO2 emissions by 5 million tonnes annually.

Tata Steel clarified that the alternative proposal put forward by the unions to maintain one blast furnace during the transition would have incurred additional costs of at least £1.6 billion (including higher operating costs and higher capital expenditure), posed significant operational and safety risks, and threatened business continuity.

TV Narendran, Tata Steel's CEO and managing director, says, “Having looked carefully at all the options over the past seven months in consultation with union representatives, we have decided to proceed with our proposed restructuring and transition. Our proposal secures a long-term future for the business and preserves the majority of jobs in the UK. We will continue to work with the trade unions over the following 2 weeks to agree a memorandum of understanding on the future of the UK business and the impact on our people.”

“Tata Steel is committed to creating a low-CO2 steel business at the heart of a green industrial ecosystem in Wales and the wider UK to safeguard steel supplies and create economic opportunities for generations to come,” Narendran adds.

The company also announced alignment with the UK Steel Committee on the cessation of production at the Coke Ovens and one Blast Furnace by mid-2024.

Rajesh Nair, CEO of Tata Steel UK, says, “We have spent the last seven months openly and transparently sharing detailed business information, asset condition, maintenance plans and market forecasts with our trade union colleagues and advisers. While we have agreed to keep the Hot Strip Mill running through the transition, the unions’ plan presents significant financial, operational and safety challenges, and delays the transition to green steel by two years. We have concluded that it is not feasible to accept their plan, and it is not affordable.”