[www.ferro-alloys.com]Benefits from the pound's depreciation and current restructuring not withstanding, India's largest private-sector steelmaker, Tata Steel, is still cautious about its U.K. operations and is carefully weighing its options. 

The Mumbai-based company sees the weakness in the pound as a temporary boost and is banking on its own restructuring, such as mill closures, staff reductions and asset sales, to pay off in the long run.

"There is a belief that with these measures [of restructuring] we will continue to be in a better zone, [even though] structural difficulties in the steel industry remain," said Koushik Chatterjee, group executive director and Tata Steel's executive director for Europe. He said the restructuring initiatives would lead to long-term benefits even when exports begin attracting higher tariffs.

Some temporary factors have worked to its advantage. Though the U.K. operations are still generating losses, things seem to be improving at the operational level. 

The European business's operating profit for the quarter ended in June stood at 8.56 billion rupees ($127 million) as compared with a loss of 5.78 billion rupees a year earlier, on the back of the depreciation of the pound, short-term improvements in steel prices, the impact of restructuring undertaken earlier in the U.K. and a stronger performance in the Netherlands, the company said.

On June 23, the day of the Brexit referendum, the euro slid to 1.31 against the pound but has since strengthened to the current level of around 1.18.

Long-term risks for Tata Steel abound: slowing demand in the U.K. caused by a sluggish economy, tariffs on exports to the European Union and revised duties on shipments to other parts of the world.

The company reckons that while the European Union economy will continue to grow gradually, growth in the U.K. may slow following the referendum result.

"Supply pressures from imports are expected to continue," the company said. "The weaker pound is expected to improve the U.K.'s short-term competitive position on exports, however it will add cost pressure due to the higher cost of raw materials purchased in U.S. dollars."

Tata Steel is closely watching how trade negotiations between Britain and the European Union pan out to rework its strategies in the U.K. market. The negotiations will be key for Tata Steel as exports from the U.K. will be subject to tariffs and duties in continental Europe, and separate levies in other parts of the world. The U.K. enjoys free trade with the region as a member of the single European market.

Tata Steel U.K. exports over 40% of its products to different markets, with 25% of volumes shipped to continental Europe.

The Brexit vote has already prompted a shift in the company's European strategy. Within a few months of announcing a sale of its entire U.K. business, Tata Steel in July announced it was putting the sale plan on hold in light of uncertainties caused by the referendum and the outcome of the government's consultation on the British Steel Pension Scheme.

It instead decided to explore a joint venture with German steelmaker Thyssenkrupp for businesses across Europe. According to reports, Tata Steel is trying to push the U.K. operations, including the contentious Port Talbot plant, in its joint venture talks with Thyssenkrupp. The outcome though is not known. There is also talk that the Welsh government may invest in the money-losing Port Talbot plant, which reported 5 million pounds ($6.65 million) of profit at the end of August.

As part of the realigned strategy, Tata Steel had also separated processes for the potential sale of the South Yorkshire-based specialty steels business and the Hartlepool pipe mills, other than the 20-inch Tube Mill, in the U.K.

Chatterjee said all such discussions, including progress on the divestment of the specialty steel business and the pipe mills in Hartlepool, are ongoing and an "appropriate disclosure in this regard will be made in due course."

"The short-listed bidders are being given access to due diligence and management meetings and the company is in engagement with all relevant stakeholders including the U.K. government, the trustee and the unions on the exposure to pensions of the U.K. business," Chatterjee also said.

He added that the company is in discussions with the U.K. and Welsh governments to see how the Port Talbot supply chain can become more sustainable and competitive in the future.

Tata Steel has already inked a deal with U.K.-based investment company Greybull Capital for its long-products business -- which includes plates, sections, wire rods and semi-finished steel -- for a nominal consideration. The deal covers facilities across England, a mill in northeast France and various distribution channels. It also sold steelworks in Scotland's Lanarkshire to commodity company Liberty House, in a deal brokered by the Scottish government.

Tata Steel, which had acquired the business from Corus in 2007, has been suffering losses for almost a decade. The Indian steel giant -- which employs 15,000 people directly in the U.K., while another 25,000 are dependent on related supply chains -- blames weak demand, high manufacturing costs and cheap Chinese imports for its troubles.

During the quarter ended in June, Tata Steel posted a loss of 31.83 billion rupees, against a loss of 3.17 billion rupees a year earlier, because of accounting for the sale of the long-products division. Revenue declined 5.7% to 264.06 billion rupees.

Operating profit at operations in India totaled 22.36 billion rupees, up around 17% year on year.

Tata Steel shares fell 5.3% to 373.60 rupees on the Bombay Stock Exchange on Monday. **Article from Internet for reference only

• [Editor:tianyawei]