Europe Drags Down Tata Steel

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland) Tata Steel (BSE:500470) (Mumbai, India) has revealed that it will wipe €1.2 billion ($1.6 billion) off the value of its European steel operations in its financial results for the last fiscal year.

The write-down comes as European steel demand continues to suffer and raises the possibility that Tata will have to start making serious cuts to its Tata Steel Europe operation, which employs around 33,000 workers, more than half of which are located in the U.K..

The company stated that there will be a "non-cash write-down of the goodwill and assets in the consolidated financial statements for the year ended March 31, 2013, of around $1.6 billion".

The company has also cut is cash-flow estimate for Europe, explaining that it expects European steel demand to stay weak over the short to medium term.

"The impairment is primarily due to a weaker macroeconomic and market environment in Europe where apparent steel demand has fallen significantly in 2012-13 by almost 8% which in aggregate results in almost 30% since the emergence of the global financial crisis in 2007," the company stated.

Tata Steel Europe was formed in 2007 when parent company Tata Group (Mumbai, India) bought out Corus Group for $11.3 billion. However the expensive purchase has failed to flourish as the global economic recession hit soon after the deal was done and European steel demand has been falling ever since.

Last month, Eurofer, the European Confederation of Iron and Steel Industries (Eurofer) (Brussels, Belgium) announced that crude steel production and apparent steel consumption in the European Union (E.U.) decreased during 2012 and showed little sign of improving for most of this year. Last week, industry tracker, MEPs, revealed that Europe's steel industry failed to see its usual seasonal upturn in activity with prices for almost all steel products in northern Europe falling during April. For additional information, see May 8, 2013, article - No Spring Bloom for European Steel Sector.

Tata is not the only steel firm in Europe suffering in the current climate. A fortnight ago, ArcelorMittal (NYSE:MT) (Luxembourg, Luxembourg), the world's largest steelmaker, started mothballing its two blast furnaces in Florange in France. It has blamed the move on continued weak European demand for steel and higher labour and energy costs in France. For additional information, see May 2, 2013, article - ArcelorMittal Starts Mothballing French Blast Furnaces.

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