ThyssenKrupp and Tata Steel UK merger puts fate of UK's top steel plant at risk - Report
Reuters reported that plagued by poor earnings, Britain’s biggest steel plant, located in Port Talbot, is likely to be first in line for job and output cuts after the planned European merger of Thyssenkrupp and Tata Steel. The merger was driven chiefly by a need to address chronic overcapacity in Europe’s steel market and should conclude late next year. The company will begin reviewing its combined production network from 2020 onwards. This is expected by industry analysts to include further job cuts in addition to 4,000 already announced along with the deal, leaving open the question where the hammer will fall hardest.
Industry analysts said that Tata’s century-old steelworks in Port Talbot, Wales, employing some 4,000 people directly and up to 16,000 more indirectly in a region with few other major industries, is a prime target for cuts in the event of a steel market downturn after 2020.
Mr Rakesh Arora managing director at Go-India Advisors in Mumbai, who has been following Tata for decades said that “They’ll only invest in the UK operations if they earn money. It’s difficult to make a call, but one thing I can tell you for sure, earnings will not be higher than they are now because we’re at a cyclical peak in the steel cycle.”
According to brokerage Jefferies, Port Talbot will have core earnings of 12 euros per tonne, a margin of 2 percent, in the first year of the merger. This compares with 92.4 euros, or a margin of 14 percent, at IJmuiden, Tata Steel’s other main production site in the Netherlands. Thyssenkrupp’s key plant in Duisburg, Germany, will earn 85.4 euros per tonne, at a profit margin of 11%.
One of Thyssenkrupp’s top-20 shareholders said that “It would logically make sense to cut capacity at lower margin sites, which I believe are mainly the Tata assets. Thyssenkrupp’s sites are amongst the best earners in Europe.”
A Tata Steel spokesman said it was the clear intent of both shareholders “to continue with the current asset configuration at all upstream sites including Port Talbot”.
Concerns resurfaced about Port Talbot’s future after the UK government wrote to Tata Steel Chairman Natarajan Chandrasekaran, asking him to commit to relining Port Talbot’s blast furnace 5. That process typically costs over 150 million pounds (USD 201 million) and gives the furnace about 20 additional years of life.
Source : Reuters