Tata Steel Europe’s boss has laid bare the dire financial problems facing the region’s third-largest manufacturer of the grey metal as he outlined plans for 1,250 job cuts.
“Our financial situation is serious and there’s an urgent priority to improve the performance of the business and our cash position,” Henrik Adam, the company’s chief executive, said in a memo sent to workers this week, seen by the FT.
It prolongs worries for Tata’s workers in Port Talbot, south Wales, who have endured years of uncertainty at the UK’s largest steelworks.
The company is grappling with high raw material costs, a manufacturing slowdown and now a deadly coronavirus outbreak.
Unions demanded urgent talks to discuss transformation plans set out in the memo, which included replacing employees who have retired or left the company and making 1,250 job cuts.
Mr Adam added the company is facing “very challenging circumstances”, although the job cuts are lower than the 3,000 the company announced last year.
Steelmakers have been struggling in the face of high raw material costs and imports of cheap metal, mainly from China.
The coronavirus outbreak is likely to exacerbate the situation as manufacturing and construction activity slows down, leading to falling demand for steel.
Europe’s steelmakers faced a “pronounced collapse in apparent steel consumption” in February, Jefferies analysts said in a note.
They added that exports are expected to increase in the first half of the year once China manages to get its steel stockpiles out of the country, a move that will push prices lower in Europe.
EU officials are considering using flexible state aid rules to support the sectors hardest hit by coronavirus.
In the face of coronavirus, Tata has increased planning around ensuring uninterrupted raw material supplies, making sure they reach customers, according to one person with knowledge of the matter.
The steelmaker has been locked in disagreements with unions about its proposal since last year when it first outlined its plans to boost profits through restructuring.
Unions say the company has provided no real solution to the problems and also blamed the cuts on a failed merger with German conglomerate Thyssenkrupp that was blocked by Brussels on competition concerns.
Both companies had hoped that the landmark steel merger would lead to cost savings.
“We just want commitments on investment in the UK. We want to keep steelmaking in the UK,” said Tony Brady, Unite officer for Tata, adding that executives need to focus on “reversing years of under-investment”.
Tata lost £76m in earnings before interest, tax, depreciation and amortisation in the first nine months of the 2019/20 financial year, according to the memo.
The Indian-owned company plans to improve ebitda by £500m, a key measure of profit, although increasing productivity and selling more high-value steels.
Tata’s employees may look longingly at British Steel, the UK’s second-largest steelmaker, which was bought by Chinese conglomerate Jingye this week in a deal saving 3,200 jobs and with a plan to inject £1.2bn into the collapsed manufacturer.
