The European crisis will affect, but not destroy Tata Steel

The industry’s problems will affect but not destroy the major steel producer Tata Steel. The Indian manufacturer has huge debts. Its European businesses are racking up massive losses amid inflation from cheap imports from China. However, a timely refinancing and support from the parent company means that Tata Steel can avoid the fate of weaker rivals.

All steel manufacturers are facing hard times. China exports record quantities of alloy, at below-cost prices, when global demand is weak. The pressure pushed Britain’s second-largest steelmaker, owned by Sahaviriya Steel Industries Thailand, to go into liquidation.

Tata Steel’s internal affairs are at a reasonable level. But they are overshadowed by the expensive purchase of the Anglo-Dutch manufacturer Corus in 2007. An acquisition that made Tata Steel the largest steel producer in the UK.

About two-thirds of Tata Steel’s net debt, which stood at $9.2 billion at the end of March, is closely linked to the company’s European division. Where liabilities now exceed the value of the division’s assets. Efforts to sell the long-product unit, which accounts for 20 percent of its European employees, have so far failed.

Steel Giant Tata Steel Has Some Advantages

However, Tata Steel has some important advantages over its Thai rival. The Indian group refinanced most of its debt. In less restrictive financial conditions in October last year. Before the escalation of China’s problems, which pushed up credit costs. Only 23 percent of the group’s debt is scheduled for repayment over the next two years, down from 56 percent before refinancing, according to Investec.

If the crisis persists, Tata Steel will be forced to make tough decisions about the future of its European business.

Article source: http://blogs.reuters.com/breakingviews/2015/10/06/european-crisis-will-bend-but-not-break-tata-steel/

Related articles:

UK steel industry affected by cheap products from China