Tata's UK steel challenge is selling a business that few want

[LONDON] Buyers for Britain's biggest steel operations may be tough to come by.

Faced with a market flooded with cheap Chinese exports, Tata Steel Ltd. is planning to sell its UK business after several quarters of losses and £2 billion (S$3.88 billion) of writedowns left the division with an asset value of almost zero.

Steel prices have plunged to the lowest in a decade and in the UK higher wages and rising energy costs make the business harder to sustain.

"It will be very difficult to find a buyer for steel assets in the current market environment," Seth Rosenfeld, a London-based European steel analyst at Jefferies International Ltd, said in a phone interview.

"Trying to ensure the long-term competitiveness of this plant will remain a real challenge for any upcoming owner." European steelmakers are struggling with prices that have fallen by more than 50 per cent since 2008 and a glut in global supply.

Tata's UK assets, once controlled by state-owned British Steel and bought for US$12 billion a decade ago, include the giant Port Talbot works in South Wales. In total, the division employs about 15,000 people.

Liberty House Group said Wednesday that taking on the company's iron and steelmaking facilities would present a "huge challenge," according to a statement from Executive Chairman Sanjeev Gupta.

The company, which is buying two of Tata's plants in Scotland, said it's interested in the UK processing operations.

"Our engagement will depend very much on what Tata and the government are prepared to do to help save these businesses," he said.

The risk of losing thousands of industrial jobs in an economically deprived region is already putting pressure on Prime Minister David Cameron.

The government is considering "all options" and wouldn't rule out temporary state control as a way to ensure sufficient time for a buyer to be found, UK business minister Anna Soubry said in a BBC radio interview.

Trade union GMB, which represents British steelworkers, said the government should consider taking over the industry to protect jobs.

"Tata has let the whole of the UK steel industry down," GMB national officer Dave Hulse said in a statement.

"We have to look at nationalizing the steel industry. Even over a short period of time this will be needed to protect the assets."

Mumbai-based Tata Steel, with operations in 26 countries, now has a market value of about US$4.5 billion, or less than half of the amount paid for its UK business.

The company has crude steel production capacity in the UK of about 11 million metric tons a year, according to its website. That's about 0.5 per cent of global production, according to Rosenfeld.

"The outlook for the UK steel industry is clearly bleak," said Alessandro Abate, a London-based analyst at Berenberg Bank.

Tata has "explained the turnaround is basically unaffordable and is net dilutive for them. There's a chance they may point to a shutdown."


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