Tata Steel has been having a pretty horrid time trying to get rid of its loss-making European steel business.
Last year, the European Commission rejected a potential merger with ThyssenKrupp’s equally struggling steel business on competition grounds. The combination of two such significant European steelmakers would give them undue dominance in the European market, the Commission argued.
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Tata Steel faces challenges
However, Tata Steel has to find a solution.
Tata Europe is almost certainly hemorrhaging cash this year. While it has been a responsible owner, it must be desperate to offload the two main assets: Tata UK and Tata Netherlands.
The combined businesses purchased from Corus were originally two distinct plants. British Steel Port Talbot and the Netherlands’ Koninklijke Hoogovens steel plant merged in 1999 to form Corus.
Unable to find a buyer for the combined business, Tata is now looking to separate the two businesses again in the hope of finding buyers for the individual plants.
Potential suitor for Tata Netherlands
Sweden’s SSAB is reportedly a suitor for Tata Netherlands. The giant IJmuiden integrated steel plant is Tata Netherlands’ main asset.
The plant includes two blast furnaces with a capacity of 7.5 million tons per annum and an associated rolling mill.
SSAB is being coy about progress on the talks.
However, for the Swedish firm — having already absorbed Finland’s Rautaruuki back in 2014 — the acquisition would further enhance SSAB’s position as a major European steel group.
The fate of Port Talbot
What will happen to Tata Steel’s Port Talbot integrated steel plant is up in the air.
Furthermore, buyers are no doubt put off by the uncertainty of Brexit and what a post-Brexit manufacturing landscape in the U.K. will look like.
Port Talbot is the U.K.’s largest steel plant. The plant employs thousands of workers and is a cornerstone for employment in the South Wales economy.
Local politicians are pushing hard for government assistance. So far, the U.K. government has looked for a commercial outcome.
Should the U.K. and Netherlands businesses split and a buyer comes forward for IJmuiden then the U.K. government’s response to a rising clamor for financial support could be a telling indication of what a post-Brexit Britain’s policy will be to state aid.
Ironically, one of the sticking points in the U.K.’s divorce negotiations with the E.U. is over the issue of state aid, with the E.U. wanting the U.K. to continue to adhere to a common set of rules. However, I say ironically because it is a Tory or Conservative government in power. Historically, the Tories have had a deep-rooted aversion to state aid. As such, why the U.K. is demanding more leeway to offer support is a mystery.
However, they would have the option to provide more generous support to Port Talbot next year if the two sides reach some form of an exclusion agreement over the remaining weeks of negotiations left before Brexit.
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