The two blast furnaces at Port Talbot, scheduled to be shut forever later this year, are the last remnants of a sprawling primary steel-making operation in the UK that Tata Steel had inherited when it acquired the Anglo-Dutch Corus Group Plc for £6.2 billion in 2007.

In the 16 years since then, it has been mostly a struggle for the Indian management to keep the hearth aglow as the UK operations, spread principally over three locations — Port Talbot, Scunthorpe and Teesside — at the time of the takeover, managed to post profit only twice on the strength of the business.

In the process, Tata Steel UK suffered close to £5 billion in losses, excluding an exceptional non-cash gain of £1.64 billion from the restructuring of the British Steel Pension Schemes (BSPS) in 2017-18.

The company on Friday disclosed that it had sunk £6.8 billion to cover losses, improvements in steel-making sites, pension restructuring costs and in capital support to service Tata Steel UK’s share of debt. In other words, it spent more to keep the UK business running than it paid to acquire the UK and Netherlands operations.

The chronology

Records kept by Tata Steel UK show it posted a profit in 2007-08, the very first year of operations under the Tata management and before the Lehman Brothers crash sent the world economy into a tailspin.

The first signs of strain were visible as early as 2009 when the company began consultation to mothball Teesside Cast Products (TCP) in north England as four international slab buyers declined to honour off-take agreements. The plant was mothballed at the end of February 2010 and sold to SSI of Thailand in March 2011. In the process, it posted a profit in 2010-11 on the back of the gain from the sale.

The next wave of restructuring hit the company in 2014 when the long product business based in Scunthorpe was hived off to a separate entity. On May 31, 2016, the Scunthorpe operations and other long products group companies were sold to Greybull Capital, reportedly for a token £1. Consequently, it was left with only one primary steel-making capacity in Port Talbot, Wales.

A year later, TSUK’s speciality steel and bar products business, principally located at Rotherham using an electric arc furnace (EAF), was sold to Liberty Speciality Steels Ltd (Liberty House).

In September 2017, Tata Steel Europe also signed a memorandum of understanding with thyssenkrupp AG (TK) Germany to forge an equal (50:50) joint venture to combine the steel business of the two behemoths. However, the plan was abandoned a year later after it failed to receive merger control approval from the European Commission.

While operational restructuring was ongoing, TSUK also took steps to insulate itself from the liabilities of BSPS and in September 2017, it received approval from the UK pension regulator to separate the pension scheme.

On the back of the restructuring of the BSPS, TSUK booked a notional gain of £1.64 billion in 2017-18 and reported book profit. Without the same, it would have made a loss of £260 million in that fiscal.

The company’s profitable outing on the back of operations came in 2021-22 as steel mills across the globe experienced an unprecedented margin expansion in the aftermath of the pandemic. It swung to red again in 2022-23 with a loss of £674 million.

Way ahead

The Tata Steel management believes the closure of the BFs at Port Talbot and the subsequent erection of an EAF can be game changer for the business which has been a drag on the more profitable Indian operations for years.

The transition is expected to reverse years of losses and be environmentally sustainable as the plant will use scrap and electric as raw materials, instead of coal and iron ore, reducing TSUK’s CO2 emissions by 5 million tonnes per year and overall UK country emissions by about 1.5 per cent.

The investment of £1.25 billion includes a £500 million grant from the UK government and the EAF is going to be ready by 2027. In the process, TSUK’s steelmaking capacity would be at 3mt, down from 14.4mt at the time of acquisition.

TSUK is hoping to be self-sufficient in raw materials use as it plans to source scrap compared to now when almost all of the raw materials for the current blast furnaces are imported.

In the interim period, Tata Steel has developed plans which would enable it to
secure continuity of supply through its existing downstream and steel processing sites for UK and overseas customers, utilising imported semi-finished steel including from Tata Steel plants in the Netherlands and India as well as other select strategic suppliers until the commencement of EAF production.

In order to be able to deliver the proposed EAF in 2027, the company has begun engineering design work and construction planning.

It is in advanced planning discussions with National Grid about enabling infrastructure and has also begun engagement with the local authority and regulators.