Tata’s Cost Cutting Efforts Again Outpaced By Falling Demand

If the North American steel industry feels they face tough conditions, they only need to look to Europe.

European steel producers have been spilling red ink since the 2008 financial crisis, accompanied by ratings downgrades to negative by Standard & Poor’s and Moody’s last year.

Indian steelmaker Tata reported a third-quarter loss after tax of $139 million, its highest in three years, compared with a loss of $110 million in the same period in 2012. Koushik Chatterjee, group chief financial officer at Tata Steel, is quoted in the Financial Times as saying, “The demand contraction in Europe [in the quarter] has been pretty significant, even structurally so.”

According to the paper, falling demand again outpaced Tata Steel’s cost-cutting efforts, which included announcing 500 job losses at one of its largest facilities in Wales last November, and making divestments of $96 million over the past nine months.

“The slide as far as the market has been concerned has been too serious for us to make a difference as far as the bottom line is concerned,” Chatterjee is quoted as saying. Even so, the firm still invested $285 million in upgrading blast furnaces at its UK operations, underlining steelmakers’ dilemmas – where to invest to improve productivity, and where to simply close overcapacity.

Governments, meanwhile, are lobbying hard for the former and aggressively resisting the latter; witness the French government’s spat with ArcelorMittal over the closure of blast furnaces at Florange in northern France reported in MetalMiner last month.

Europe is simply producing more steel than it needs, and its high-cost base is making it tough to compete against imports, let alone compete effectively in export markets. Europe produced 22 million tons of steel more than it consumed in 2012 , almost one-sixth of total production.

by Stuart Burns