Tata Steel UK’s operations enter a critical phase as talks with the UK government for financial support of £1.5 billion remain inconclusive. The upstream (blast furnace and coke oven plant) and midstream assets of the company at Port Talbot, UK are reaching end-of-life in the next 1-2 years and the company wants to switch to alternative green technologies within this period.
“Tata Steel has had active and detailed discussions with the UK Government in relation to the future of the UK business. Given UK’s decarbonisation journey and rising carbon costs, it has been clear that for the continuity of steel-making in the long-term, it is necessary for Port Talbot to transition to alternative green technologies,” the company management said in the recent annual report.
Tata Steel has therefore sought support from the government in two forms--- in policy terms by encouraging the transition to green steel and ensuring a cost-competitive landscape and partnership in the financing of the project given the size of investment and the financially constrained position of our UK business.
The steelmaker earlier demanded a £1.5 billion in financial support from the government for its new plan of building a scrap-based steel manufacturing plant in the UK. However, the UK government offered £300 million in January and the company has since been discussing with the government to increase the support.
“The management of Tata Steel UK will evaluate all scenarios with regard to the future configuration of the business and will consult appropriately with various stakeholders prior to relevant strategic decisions being taken. Any decision-making will also take into account our market, customers, supply chain impacts and safe operating practices for our employees,” according to the management.
N Chandrasekaran, chairman, Tata group recently said Tata Steel continues to face challenges in the UK, Netherlands, and Canada. The Netherlands unit has progressed towards accelerating its transition to sustainable steel production, with a plan to move from coal to gas and then hydrogen-based steelmaking. However, the UK business continues to face challenges due to commodity and energy price volatility, high input costs, and sluggish demand.
The liquid steel production from Tata Steel’s European operations was 9.35 million tonne (MT) in the last financial year, compared to 10.11 MT in the previous year, a decrease of 8%. Deliveries decreased by around 10% to 8.16 MT. The dip in delivery was primarily because of the low demand in the market in the second half of the year following the general economic slowdown in Europe.
Turnover from operations improved slightly to ₹90,300 crore from ₹90,023 crore due to higher average revenue per tonne which more than offset the lower deliveries. The earnings before interest, tax, depreciation and amortisation (EBITDA) fell to ₹4,632 crore as against ₹12,164 crore.
According to analysts, the UK business had incurred a cash burn of $150 million in the second half of the last financial year. "Tata Steel Netherlands has £600 million in cash, while the UK business burnt $150 million in the last six months,” said analysts with Anand Rathi in a report.