Next UK PM to decide fate of Tata Steel’s demand for subsidy


Both she and her rival, Rishi Sunak have claimed to be Thatcherites who in the 1980s, refused to bail out struggling coal mines and steel production…reports Asian Lite News

The fate of Tata Steel’s UK business has shifted to the next British Prime Minister who has to take a decision on whether to grant a 1.5 billion pounds ($1.8 bn) subsidy to the company or let it shut down.

This was indicated by business secretary Kwasi Kwarteng after Tata chairman N Chandrasekaran warned on Friday that the subsidy to the British steel plant is necessary within the next one year to keep the steel plant in the UK operational or the plant will close down.

Chancellor of the Exchequer Rishi Sunak leaves the Prime Minister Boris Johnson weekly Cabinet Meeting inside No10 Downing Street on his way to deliver his 2021 Budget to the House of Commons. Picture by Andrew Parsons / No 10 Downing Street

The Financial Times reported on Saturday that Kwarteng’s stance is significant because he is tipped to be the next chancellor if foreign secretary Liz Truss becomes premier when a new Tory leader is announced on September 5. Interestingly, Truss has campaigned to reduce the size of the state and cut taxes. Both she and her rival, Rishi Sunak have claimed to be Thatcherites who in the 1980s, refused to bail out struggling coal mines and steel production.

Tata Steel’s UK facility has manufacturing capacity of 5 million tonnes, which employs 8,000 people, while the Netherlands facility has seven million tonnes capacity and employs 9,000 people. The Southeast Asia operations has another 1.7 mt capacity. The UK and the Dutch operations are housed under Tata Steel Netherlands. Tata Steel UK needs the subsidy to reduce carbon emissions at its Port Talbot facility by building electric arc furnaces and closing the two blast furnaces in the UK and stopping primary steel production. Arc furnaces on the other hand recycle steel and are less carbon intensive than the blast furnaces, the FT said.

Analysts at rating firm Moody’s recently said given the lack of vertical integration at Tata Steel’s European operations and the wide swings in the business’ profitability in previous years, they remain cautious in the forecasts and assume that the business’ earnings before interest, taxes, depreciation, and amortisation (EBITDA) per tonne will decline from $180 in fiscal 2022 to around $140 -$150 in fiscal 2023 and further slide to $40 -$50 in fiscal 2024. Also embedded in this assumption is Moody’s view that inflationary pressures and volatile energy costs will likely prolong through the ongoing fiscal year.

Analysts said in the fiscal year ending March 2002, Tata Steel Europe’s operations have witnessed a considerable turnaround with an EBITDA per tonne of Rs 13,741 for the year 2022 (the company had made an EBITDA level loss in previous year). The company had maintained the volume at nine million tonnes as compared to 8.8 MT reported in previous year. This is mainly on account of the strong rebound demand from the European markets and improvement at realisation levels. In the second half of fiscal 2222, deficit in the European steel market on account of China going into second lockdown and declined production by the Chinese players owing to policy restriction was picked up by other players, including Tata Steel Europe which has resulted in the improvement performance at TSE level.

“However, going forward, the performance of TSE will be a key monitorable in terms of the rating perspective,” rating firm Care said early this month.

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