Tata Steel to shut Corus Teesside unit

Written by Corporate Bureau | Mumbai | Updated: May 9 2009, 06:09am hrs
Tata Steel Ltd, the worlds sixth-largest steel manufacturer and owner of UK's Corus since 2007, on Friday said it might close European arm Teesside Cast Products (TCP) after four international bidders last month terminated a ten-year contract for slab off-take from the unit. Two members of the consortium, Marcegaglia of Italy and Dongkuk Steel of South Korea, have also decided not to pick up an agreed 80% stake in the unit because of the persistent weakness in global steel markets.

According to experts, the TCP closure would not impact Tata Steels earnings as the plant did not contribute anything to its ebidta. However, the concern is liquidity as Tata Steel hoped to raise $480 million from the sale of the plant to finance debt for the $12-billion buyout of Corus. In 2009-10, Tata Steel will have to pay $645 million towards debt, of which $271 million is to service the Corus debt.

In a statement to the BSE, Tata Steel said, This development has become unavoidable because of a failure by four international slab buyers to fulfil their obligations under the offtake framework agreement. Tata Steel shares on Friday slipped 4.03% to close at Rs 282.50 on the BSE.

The two others in the consortium were Duferco of Brazil and Alvory, a subsidiary of Latin American steelmaker Ternium. They were to buy just under 78% of the plants production for ten years, underpinning its future.

Corus has started discussions with the 1,920 employees about mitigating the impact of mothballing the TCP plant. Two thousand jobs are now in jeopardy and a community distressed, Corus CEO Kirby Adams said in a conference call. The company also said it was using all legal means to ensure the terms of the ten-year contract were enforced and that the four members of the consortium lived up to their contractual obligations.

To limit losses, Corus has already decided to divest in downstream businesses. Briand Investments, an affiliate of UK investment group Klesch, had agreed to acquire Corus' aluminium smelters at Voerde in Germany and Delfzijl in the Netherlands. The company has also closed three service centres in the UK. As part of restructuring its building systems division, it has closed units in south Wales and relocated the facilities to Shotton in northeast England.

TCP has a capacity to produce 3.9 million tonne (mt) of steel slabs that can be rolled to make plate or sections commonly used in construction, bridge building and shipbuilding. Tata Steel, on a consolidated basis, produces 28.1 mt of steel a year, according to data for fiscal 2008-09.

While announcing its third-quarter results earlier, Tata Steel said Corus had reduced steel production by 40% in Europe owing to a demand slump.

Europe's construction market was down by 50% in the early part of this calender year, while the auto market was down by 30-40%.