The Tata group is working towards turning around Port Talbot, which could entail a phased investment in assets and an overhaul of systems.
“The Tatas under Ratan Tata would like to turn around Port Talbot and a plan is in the works. The group realises that Scunthorpe was sold too soon,” people familiar with developments said.
The Tata Sons’ latest explanation on why Cyrus Mistry was ‘replaced’ said that in the past three years the group had written down, written off or made provisions for impairment worth thousands of crores. “Tata Steel alone has written off a large part of its investment in its UK/European assets. It is interesting to note that the new buyers of some of the steel assets for one pound in the UK have claimed a dramatic turnaround in the very first year of their takeover. In our view, these sub-par results cannot be blamed on the commodity cycle or economic conditions,” the letter released on Thursday said.
According to media reports in the UK, the new owners of Scunthorpe were targeting a 10% profit margin on its annual revenues of 1.2 billion pounds, meaning it could make a profit of 120 million pounds a year.
Indeed, people familiar with the UK plants said that UK plants’ performance could not be just linked to raw material. The plan to turn around could be a three-pronged exercise with investment in leadership and assets and an overhaul of supply chain.
“The investment in the plant could be around $500 million but this may be staggered. The blast furnace at Port Talbot may call for relining in 2019 which is when the company will have to weigh in whether they will go for relining or a shift in technology like the electric arc furnace route,” sources close to the development said.
Also, an overhaul of supply chain servicing could bring down the cost. “The supply chain cost in the UK is much higher than Germany and France. It is expensive to import raw material and service markets using roads. But if waterways is used, then it is possible to bring down the cost by $10-$12 a tonne. It will also be possible to reach out to the right markets,” sources explained.
“The investment in Port Talbot has been 185 million pounds in blast furnace and 60 million pounds in gas recovery after acquisition. The plants were under-invested at the time of acquisition and even after acquisition, investment proposals mooted by the Tata Steel management were met with resistance from the erstwhile management of Corus,” sources said.
Source:BS