LONDON (Reuters) - Tata Steel will finance the repair of a blast furnace at Britain’s largest steelworks in Port Talbot, Wales, extending its life by seven years and soothing concerns about its commitment to Europe’s steel sector, four sources told Reuters.
India’s Tata Steel (TISC.NS) signed a preliminary deal last year to merge its European steel assets with those of Germany’s Thyssenkrupp (TKAG.DE) in a move driven chiefly by a need to address steelmaking overcapacity in Europe.
Fully relining a blast furnace typically costs over 150 million pounds ($200 million) and gives the furnace an additional 20 years of life approximately, while the repairs Tata is looking at will cost about half of that, the industry sources said.
Tata Steel declined to comment.
With earnings at the Port Talbot running at a fraction of those at Tata and Thyssenkrupp’s European assets and Britain’s exit from the EU posing extra risks, the plant was seen as particularly vulnerable in the event of a downturn.
But with Tata Steel looking to extend the life of one of its two Port Talbot blast furnaces and a new vision at the firm’s Indian parent following a top level management change last year, industry sources say those concerns are receding.
“We are nowhere near where we were two years ago,” one industry source said, referring to the steel sector crisis of late 2015 in which Tata attempted to sell the its UK assets, including the Port Talbot plant which was losing 1 million pounds a day at one point.
Under the terms of a deal Tata signed with British unions in late 2016, the company committed to no forced redundancies at Port Talbot and to keeping a two blast furnace operations at the plant until 2021.
Given that the blast furnace Tata is looking to repair - blast furnace five - was due to end its life in 2018-19, the company was obliged to do something to extend its life by another two years.
Tata is, however, going beyond that with more costly, long-term repairs. It is also investing more than the 100 million pounds a year it committed to spend on its UK assets over the next decade under its deal with unions.
Earlier this month, Tata said it had invested more than 14 million pounds in one of its Port Talbot mills, in a move that would increase capacity by 150,000 tonnes per year. In November, it announced 30 million pounds of investments in the plant.
The Community union, representing workers at Port Talbot, will continue to push for a full reline of blast furnace five, said Steve McCool, the union’s national officer.
The global steel sector is emerging from a crisis in which global prices slid to 12-year lows in late 2015, resulting in plant closures, capacity reductions, and thousands of jobs cuts. Prices have since recovered some 60 percent, according to consultants MEPS.
Tata on Friday reported a five-fold increase in third-quarter profit, boosted by strong volume growth in India and rising steel prices. Shares in the company have risen some 6 percent since the results were published.
Reporting by Maytaal Angel; Editing by Veronica Brown and David Evans