Day: 18 August 2020

Tata Steel Europe, the UK’s biggest steelmaker, is still in talks with the British government on possible support for the company’s operations in the country, which include the major Port Talbot blast-furnace-based steelworks in South Wales, a company spokesman told S&P Global Platts on Aug.16.

The company denied press reports in recent days that its negotiations with the government for a support package had fallen though because the steelmaker, part of an Indian-owned conglomerate, did not qualify for the UK government scheme.

“Tata Steel remains in ongoing and constructive talks with the UK Government on areas of potential support,” the Tata Steel Europe spokesman said. “As these discussions have not reached a conclusion, it would be premature to comment on any options that may or may not be under consideration.”

Platts understands that Tata Steel, which employs around 8,000 people in the UK, has has been in negotiations for around three months with the government’s Department of Business, Energy and Industrial Strategy (BEIS) on a loan under its Project Birch scheme aimed to safeguard UK industrial operations that have suffered as a result of the COVID-19 pandemic.

Reports not confirmed by Tata say the steelmaker has been seeking about GBP500 million ($654.75 million)-worth of support from the government, and that there has been talk of the government offering a loan in return for equity to the steelmaker.

BEIS did not respond to Platts’ requests for clarification Aug.16.

Spanish-owned Celsa Steel UK, the largest UK manufacturer of reinforcing steel with annual production capacity of 1.2 million mt of long products, was granted an emergency loan by the UK government early-July to allow the company to continue trading amid difficult market conditions caused by the coronavirus pandemic

The Celsa loan – estimated by media at GBP30 million – is expected to be repaid in full and is linked to a series of conditions, including job-protection, climate change and net-zero targets, BEIS said in a July 2 statement.

Celsa UK produces steel in Cardiff, South Wales, using electric arc furnace technology which typically has a lower carbon footprint than the blast-furnace production route.

Tata sees ‘slower’ recovery for European operations

European Steel Association Eurofer said earlier this month that total output by steel-using sectors in the European Union, including construction and automotive, is set to fall by 12.8% in 2020 and to recover by 8.9% in 2021.

In the UK, the picture is further clouded by increasing uncertainty over whether the government will reach a Brexit trade deal before the deadline later this year. A no-deal could reduce production in the UK automotive sector, one of Tata Steel Europe’s most important customers for its flat rolled steel.

Tata Steel said its in its April-June results announcement Aug. 13 that it expects its overall demand recovery prospects in Europe to be “slower” than in the rest of the group, with an overall 2020 European demand decline for its products of about 16%.

Tata Steel Europe also operates an integrated steelworks in the Netherlands. Its Port Talbot blast furnace site has been kept in operation at a reduced rate in recent months, while its cold mills have continued operations based on customer orders. Port Talbot has a designed steelmaking capacity of 5 million mt/year.

The company reported Aug.13 that “Tata Steel Europe’s performance (in the April-June quarter) was affected by lower deliveries and sharp decline in European spreads to an unsustainably low level. ….the company did receive short support from the UK and Netherlands Government including cash flow deferrals of payables.”

British Steel — purchased this year by China’s Jingye Steel Group — and Liberty Steel Group are also understood to have applied for government support as a result of the UK market downturn caused by the pandemic.

According to Platts’ calculations, cumulative loan requests to the UK government from steel producers have so far approached around GBP1 billion.

— Diana Kinch

Klöckner & Co expects upcoming acquisitions to accelerate its digitalisation process

The acquisition and integration of new companies into the German-based distribution group will open new opportunities for its ongoing digitalisation, chief executive Gisbert Rühl said during a conference call attended by Kallanish.

A mere acquisition by itself has only minor potential for growth, “…as you cannot boost margins that much in our industry,” Rühl explained. However, tying in new member companies into the group’s digitalisation process from the outset will provide much stronger leverage, he added.

Regarding its digitalisation ambitions, Klöckner regards itself as a beneficiary of the coronavirus pandemic, which has acted as an accelerator, it writes in its half-year report. The share of sales generated via digital channels increased at a faster pace in the second quarter to 38%, up from 29% in Q2 2019.

The AI-based Kloeckner Assistant delivered a significantly increasing contribution to this development. According to Klöckner, the application shortens what was previously a complex ordering process for both buyers and sellers from several days to just a few minutes.

Additional important progress was also made with the open industry platform XOM Materials. The new AI-driven XOM eProcurement solution will almost fully automate the procurement process for XOM customers.

Klöckner & Co intends to proceed with acquiring distribution companies in Europe and the USA, Kallanish hears from its outgoing chief executive, Gisbert Rühl.

Rühl said during a conference call he expects opportunities to come about in the wake of the coronavirus crisis, “…which not everyone will survive unharmed.” Klöckner has a strong financial cushion for takeovers, in the three-digit-million euro range, he added. The German-based distribution group is eyeing smaller stockholders as well as groups for expansion in existing regions of activity, as well as in new regions that Rühl did not specify.

He emphasised Klöckner is not much interested in distribution companies that are part of mill groups. This suggests that a combination of Klöckner and thyssenkrupp Materials Services, which in Germany is bigger than Klöckner, has become unlikely. Although thyssenkrupp AG undergoing restructuring, its chief financial officer, Klaus Keysberg, made clear last week that it intends to hold on to its distribution division.

An unexpected guest at the conference call was former thyssenkrupp ceo Guido Kerkhoff, who will soon replace Gisbert Rühl as ceo of Klöckner. He named consolidation as one of the key challenges of his upcoming tenure, and noted that “…Klöckner is in a very good starting position” for acquisitions.

Tata Steel says it remains in talks with the UK government on receiving support for Port Talbot but declined to comment on specifics. This follows media reports suggesting the steelmaker had ended talks with the UK government on receiving close to £500 million ($655m) of funding through the “Project Birch” scheme.

A Tata Steel spokesperson tells Kallanish: “We remain in ongoing and constructive talks with the UK Government on areas of potential support. As these discussions have not reached a conclusion, it would be premature to comment on any options that may or may not be under consideration. In the meantime, we will not respond to speculative and inaccurate media reports about the future of our operations in the UK or elsewhere.”

The media reports said the UK government ended talks with Tata as it concluded the steelmaker is sufficiently financed and does not qualify for taxpayer support.

Last month Celsa UK received a government loan worth £30m, while Tata Steel was set to receive a much larger amount, according to reports (see Kallanish passim). In return for the state loan, the government was reported to be requiring the steelmakers to commit to investments to further curb CO2 emissions.

Tata Steel Europe confirmed last month it was discussing with the UK government several options for the future of its UK operations, to address existing structural challenges. One of these was understood to be the possible replacement of the blast furnaces at Port Talbot with electric arc furnaces.

Tata Steel Europe’s June-quarter performance was affected by the overall weakness in economic activity in Europe. “Spreads are at unsustainably low levels but are expected to improve going forward,” Tata Steel chief executive TV Narendran said of Europe last week.