Tata Steel To Shut Down Loss-Making Blast Furnaces In The UK

(Bloomberg) --

Tata Steel Ltd. plans to shut down two loss-making blast furnaces at its steelworks in Port Talbot, after last year securing government financing to convert the historic site in Wales into a production hub for recycled steel.

The steelmaker on Friday said the decision will affect up to 2,800 workers, and is designed to reverse more than a decade of losses at the plant. The widely expected move comes after it reached a deal with the UK government for £500 million ($636 million) in funding to support its transition to making steel in electric arc furnaces.

While significantly greener than coal-fired furnaces, the new process is also much less labor-intensive. Port Talbot’s blast furnaces and coke ovens are expected to be decommissioned this year, and Tata expects 2,500 roles to be impacted within the next 18 months.

Unions had hoped to keep one of the furnaces running during the transition, but the company said doing so wouldn’t be feasible due to the heavy losses involved in running the plants.

Tata’s British steelmaking operations have struggled for years to turn a profit. Sales in Europe have been sluggish amid rising cost pressures and competition from Asian imports. 

The company will announce its third-quarter earnings next week. It posted an unexpected loss in the prior three-month period, mainly dragged down by weak European performance. 

“The closure of these old and loss-making operations will be a step toward more sustainable operations for the company,” said Manav Gogia, an analyst at Yes Securities India Ltd. “The market is now waiting to see how the trade union plans are formulated.”

Tata Steel’s shares jumped the most in more than a month to close 2.5% higher in Mumbai, before the company formally announced the blast furnace closures.

Opposition lawmaker Stephen Kinnock, whose constituency Aberavon is home to the Port Talbot steelworks, told Sky News on Friday that the move by Tata was “deeply disappointing.”

“We’ve got a plan that’s been cobbled together between Tata Steel and the UK government which is going to use £500 million of taxpayers money to make 3,000 men and women redundant,” the Labour Party lawmaker said. It “is also going to remove the British capability to make its own steel from scratch. We would become the only country in the G20 that is no longer able to do that.”

(Updates with Tata’s confirmation of blast furnace shutdowns starting in second paragraph)

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