The latest proposal of Tata Steel to sell its long products business in Europe can be viewed as part of the company’s ongoing plans to restructure its long products division in Europe. The Scunthorpe facility, which produced 3.2 million tonnes of steel in 2013-14, accounts for around 21 per cent of Tata Steel’s output from its European operations. According to the company, this will help it focus better on its remaining steel strips business.

Tata Steel, the world’s eleventh largest steel producer, has operations spanning Europe, India and South East Asia, with the European business contributing to over half of the company’s sales (volume). While Tata Steel has been expanding its production capacity in the high-margin Indian business, it has been restructuring its operations in Europe.

Restructuring Europe

Over the last few years, Tata Steel has been restructuring its European operations — closure of selective operations at certain facilities, consolidation of distribution centres and reduction in workforce — in its efforts to cut down costs. This has included the closure of its construction products business at Newport, mothballing of the hot strip mill at Llanwern, both in Wales and successive job cuts.

It was only a few months back when the company cut down its workforce at the Port Talbot plant in South Wales after similar job cuts at other European facilities in the preceding two years.

Less-remunerative Europe

While Tata Steel’s European operations account for 57 per cent of the company’s consolidated revenue, their contribution to operating profit is only around 20 per cent. This is despite the improvement in performance in Europe in the recent past following the company’s several initiatives including cost-cutting measures.

Going forward, while the World Steel Association predicts a 4 per cent growth (up from 0.8 per cent in 2013) in steel demand in 2014 for the European Union, it cautions that risks to growth still remain.