The decision of Indian steel maker Tata Steel to pull out from the UK with a total or partial sale of its assets has put at risk more than 15,000 jobs. Tata Steel wanted to divest the UK business saying that it is unable to sustain the mounting losses.
The steel maker has been facing heavy losses to the tune of $1.86 million a day. Many factors have contributed to the crisis and some of them included climate change related policies by the governments. These policies are really hard hitting.
For Tata Steel, the bad times started soon after its acquisition of Corus steel in 2007, at the peak of the commodity boom. It acquired the UK assets of Corus Group at a cost of t $12.9 billion.
When Tata took over Corus, steel prices were still high. “It was a fantastic deal for Tata,” said Peter Brannen, metals editor at Platts, at London
“The year 2007 was when the markets boomed. But then you had the crash of 2008.”
In 2008, the global financial crises erupted and fall in demand followed. A crisis emerged when steel prices dropped sharply and was further compounded by the cheap Chinese imports.
As a double whammy, the British parliament in 2008 passed the Climate Change Act for reducing carbon emissions by according high priority to renewable energy projects like windmills in electricity production, reports Scroll.
According to World Steel Association, electricity takes 20 percent to 40 percent of the total costs in the manufacturing sector.
A “green tax” was slapped on energy intensive industries making it mandatory for industries to pay for carbon emissions. The UK earned global praise for being the “first country to put in place a legally binding act to counter the climate change.”
“What started off as a minor inconvenience has become a major problem for the industries,” noted Jeremy Nicholson of Energy Intensive Users group.
Meanwhile, on Monday, the Tata group started the process of disentangling from the Corus Group and agreed to sell its main steelworks unit to investment firm Greybull Capital. The deal will save 4,800 jobs as Greybull Capital takes over its assets and liabilities.
“The agreement is an important milestone on the road towards continuing steelmaking in Scunthorpe and steel processing in other locations in the UK and France,” the company said.
The deal also includes a $700 million investment and financing package and agreements with suppliers and unions for cutting costs, reports The Mint.
In a statement, Greybull said from now on, the products from this division would sell under the brand, British Steel. Hans Fischer, CEO of Tata Steel’s European operations, said the company was pleased with the deal.