What some might regard as ‘the inevitable’ has happened. Tata Steel in India plans to sell its UK business, which has been losing money hand over fist as a result of high-energy costs, a strong pound and, of course, cheap Chinese steel imports.
A management and workforce buy-out have been mooted, but, as UK business minister Anna Soubry has told the BBC, the UK must work within EU rules over state aid – which basically means that the Government’s hands are, to a degree, tied behind their backs.
The Government has ruled out direct stake involvement – possibly because of EU state aid rules.
The news is not good for those who work for the steel giant in the UK, particularly those based at the Port Talbot steelworks, which is rumoured to be losing £1 million per day. Steelworkers at the plant are in a state of shock having expected some form of rescue plan.
The big question is who would buy a steel plant that is losing £1 million every day? While Liberty Steel and Greybull are both in the process of buying elements of the Tata Steel business, would either of them consider purchasing the Port Talbot works?
Many people closely associated with the plant regard the forthcoming sale as the ‘last chance saloon’ for Tata Steel UK.
The Labour Party’s shadow business secretary, Angela Eagle, has commented that the UK steel industry is in the middle of a perfect storm. She argued that steel is fundamental to the UK’s manufacturing industry and that the Government should be pulling out all the stops and possibly become a ‘steward of the assets’ until such time as they can be sold off. “The assets you have in a steel making plant must be looked after or lost forever,” she said.
On EU state aid rules, Eagle said that there is room for negotiation. “We’ve got to get the government to deliver on assertions from the prime minister down that they want to preserve our capacity to make steel,” she added.
A report on the BBC news website claims that the government is looking at offering loan guarantees to potential buyers “and much tighter rules on procurement to ensure major British projects are obliged to buy British steel.”
Joshua Raymond of CFD and FX broker XTB.com said, "Tata seems hell bent on cutting its non-performing UK assets, particularly after a tough commodities market in the last few years. The fact they have taken a £2bn impairment over their UK business in the last five years means from a purely business standpoint, the move makes complete sense. The move could cost as many as 15,000 jobs and as such, the UK government looks primed to step in to help find a buyer and ensure a more gentle transition for its workers, perhaps in the same vein as the Scottish government did when helping Tata sell two steelworks to Liberty House earlier this month.
“The problem, however, is whether they can find a buyer given the increasing fragility of UK steel and a collapse in prices amidst a cheaper influx of steel from foreign partners in China and Russia. What is also likely to complicate matters further is the uncertainty over Brexit and this may not just make finding a buyer even harder but could also result in a devalued asset sale given the depreciation of the pound over the past three months on Brexit fears."