Write-downs, Restructuring Costs Help Push Tata Steel's Q3 Earnings into the Red
02/04/2016 - Tata Steel Ltd. lost Rs 2,127 crore in its third quarter as it continues to face low prices and competition from imports.
In a statement, the India-based steelmaker said exports from countries such as China, Russia, Korea and Japan have surged to all-time highs, driven by excess domestic capacity and lackluster domestic demand relatively stong currencies abroad.
Accordingly, imports and depressed international steel prices have impacted the Indian steel markets, said T. V. Narendran, managing director of Tata Steel in India and southeast Asia, in a statement.
"Tepid demand among steel consuming sectors has further exacerbated the problem,” he said.
Nevertheless, Tata’s India operations reported what it called strong growth in production and deliveries. Production grew 13.1 percent on a year-over-year basis, rising to 2.51 million metric tons. The gains, however, were offset by falling prices.
But the loss wasn’t driven solely by lower prices – Tata's European business recorded significant impairment and restructuring charges amounting to Rs 687 crore.
In the U.K., the company has mothballed mills and shed approximately 3,000 jobs as it copes with market conditions. Tata also in discussions to sell its European long products business to investment firm Greybull Capital.
“Growing European steel demand continues to be undermined by a flood of imports into the region. Chinese steel shipments into Europe leapt more than 50% last year, while imports from Russia and South Korea jumped 25% and 30% respectively,” said Tata Steel Europe managing director and CEO Karl-Ulrich Köhler in a statement.
“This perfect storm caused the deterioration of our financial performance in the last quarter and led to us announcing restructuring in the UK where our operations also face higher regulatory costs. These changes will continue to be a core focus in a bid to improve our competitiveness and enable us to concentrate on supplying higher-value products to customers,” he said.
Although Tata Steel has expressed a commitment to turning around its European business, many analysts predict that its U.K. operations will struggle to achieve profitability, reported The (London) Financial Times.
“Fundamentally there is this big question of why they are making steel in a country like the UK, where you don’t have iron ore or coking coal, which makes everything more expensive,” Bijal Shah, a metals analyst at the India Infoline brokerage, told the newspaper.
Accordingly, imports and depressed international steel prices have impacted the Indian steel markets, said T. V. Narendran, managing director of Tata Steel in India and southeast Asia, in a statement.
"Tepid demand among steel consuming sectors has further exacerbated the problem,” he said.
Nevertheless, Tata’s India operations reported what it called strong growth in production and deliveries. Production grew 13.1 percent on a year-over-year basis, rising to 2.51 million metric tons. The gains, however, were offset by falling prices.
But the loss wasn’t driven solely by lower prices – Tata's European business recorded significant impairment and restructuring charges amounting to Rs 687 crore.
In the U.K., the company has mothballed mills and shed approximately 3,000 jobs as it copes with market conditions. Tata also in discussions to sell its European long products business to investment firm Greybull Capital.
“Growing European steel demand continues to be undermined by a flood of imports into the region. Chinese steel shipments into Europe leapt more than 50% last year, while imports from Russia and South Korea jumped 25% and 30% respectively,” said Tata Steel Europe managing director and CEO Karl-Ulrich Köhler in a statement.
“This perfect storm caused the deterioration of our financial performance in the last quarter and led to us announcing restructuring in the UK where our operations also face higher regulatory costs. These changes will continue to be a core focus in a bid to improve our competitiveness and enable us to concentrate on supplying higher-value products to customers,” he said.
Although Tata Steel has expressed a commitment to turning around its European business, many analysts predict that its U.K. operations will struggle to achieve profitability, reported The (London) Financial Times.
“Fundamentally there is this big question of why they are making steel in a country like the UK, where you don’t have iron ore or coking coal, which makes everything more expensive,” Bijal Shah, a metals analyst at the India Infoline brokerage, told the newspaper.
