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Will Tata UK steel exit spark mergers?

Thursday, March 31, 2016 - 01:34

Tata Steel's plan to sell its British steelmaking business has raised expectations of a long-awaited consolidation in the European steel sector, which is suffering from years of unaddressed overcapacity. Ivor Bennett reports.

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Port Talbot's giant chimneys are still smoking for now. But the thousands who work them know they may not be for much longer. And it's not just here. Tata's decision to sell its UK operations has put the country's entire steel industry on the line. And even from a government that says it's not ruling anything out, comes this depressing disclaimer. SOUNDBITE (English) UK PRIME MINISTER, DAVID CAMERON, SAYING: "We're going to work very hard with the company to do everything we can. But it is a difficult situation. There can be no guarantees of success, because of the problems the steel industry faces worldwide." Falling prices, high costs and cheap Chinese competition saw Tata's UK assets written down by nearly 3 billion euros. No surprise buyers aren't exactly queuing up. SOUNDBITE (English) ADMIRAL MARKETS, MARKET COMMENTATOR, DARREN SINDEN, SAYING: "Unpalatable as this prospect is, it would probably suit many of Tata's European and even global peers to see that plant close and to see the extra capacity taken out of the market." A spark too, perhaps, for a wave of consolidation. Germany's Thyssenkrupp is known to be looking for a partner for its European operations. Tata now free to do the same for its profitable Dutch business. Such a merger could support prices for others to explore acquisitions too. Or, to simply hang on to what they've got. SOUNDBITE (English) ADMIRAL MARKETS, MARKET COMMENTATOR, DARREN SINDEN, SAYING: "The truth is that you know most of the economies of scale that can be rung out of these businesses have been done so already and I think most people will just be hanging on to, for want of a better phrase, grim death." And not just them. 330,000 people are directly employed by Europe's steel industry. Thousands more dependent on it for a living.

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Will Tata UK steel exit spark mergers?

Thursday, March 31, 2016 - 01:34