* SSI UK signed 5-year contract for UK coal supply
* The steel firm is preparing to trade iron ore swaps
* SSI is open to discuss potential Tata assets sale
By Silvia Antonioli
LONDON, June 13 (Reuters) - The British unit of Thai steel firm Sahaviriya Steel Industries (SSI) hopes to generate profit by the end of this year thanks to a new plant which will reduce costs and boost output.
A new $60 million pulverised coal injection plant (PCI), which will be commissioned on Jun. 18, should allow SSI UK's steel plant in Teesside, north-east of England, to use cheaper domestic coals providing a cost saving of about $100 million a year, Chief Executive Phil Dryden said.
This could also help the UK coal industry which has been suffering due to rising costs.
SSI is the second-largest steel producer in the UK, most of its semi-finished product going to Thailand to be re-rolled into flat finished products such as hot rolled coil (HRC), used to make white goods and cars, among other things.
"We have not been competitive last year because we had a big weight around our neck which was building the PCI plant; we took a massive leap commissioning the plant," Dryden told Reuters in a phone interview.
"It is a massive change on the costs and the blast furnace will become more productive, more capable and therefore we can move the production capacity up."
SSI UK posted a loss of about 300 million pounds ($470.60 million)last year but it hopes the new PCI plant will help boost steel output from 2.5 million tonnes currently to 3.4 million by the end of the year, increasing its economies of scale.
Initially the PCI plant will use Russian coal but the steelmaker has signed a five-year agreement with UK coal miner Hargreaves to supply them with up to 700,000 tonnes of coals, including steam coal.
"We have identified UK coals and one particular coal from South Wales to be used in the plant but Hargreaves counts on adding other sites," Dryden said.
"What I would really, really like to see is a North Eastern coal coming into a North Eastern steelworks, that's a dream. You can say it plays out on emotional connectivity but actually it also makes logistical sense because we would be transporting coal 20-30 miles as opposed to 300 miles."
SSI, Southeast Asia's largest fully integrated steel sheet producer, bought the Teesside integrated mill, for about $500 million in early 2011 from Tata Steel.
In April 2012 SSI restarted the blast furnace that Tata had mothballed due to weak market conditions and has slowly increased production since.
"We were expecting to be struggling in the first year because we were missing something and we hoped that the market might have been kinder to us," Dryden said.
"The market hasn't been kind to anybody in the last 12 months. The Thai company sold a record amount of HRC but the problem is prices."
World iron and steel prices are at multi-year lows.
SSI UK also now plans to buy a third steel caster plant which should boost capacity to 4.2 million tonnes a year.
"We hope to deliver it in the next two years but finding the optimal way to fund that is still a work in progress," Dryden said.
As part of its strategy to improve profitability SSI UK is implementing an energy scheme to generate more electricity and sell it to the grid and is also planning to start hedging raw materials such as iron ore.
Reducing cost has become vital to all steelmakers to survive the current market environment, particularly in Europe.
Tata Steel, for example, recently wrote down $1.6 billion due to poor demand in Europe, its main market, and said a sale of some of its European assets could happen, should the right opportunity come along.
SSI said it would be open to talk with Tata Steel over a potential sale.
"There is already a business relationship with Tata so at some stage those discussions might develop but I am not aware of anything at the minute," Dryden said.