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Chairman Mistry Forecasts Challenging Two Years for Tata Steel

Tata Steel Ltd. (TATA), India’s biggest producer, forecast the next two years to be “challenging” because of a slowing local economy and a global supply glut.

“The overhang of the economic crisis and significant overcapacity in regions like Europe and China continues to stress global capacity utilization and the demand supply balance,” Chairman Cyrus Mistry said in the company’s annual report published today. “The Indian economy has slowed down in the last 12 months and some of the sectors including the automotive and capital goods have been faced with a demand slowdown that is unlikely to turn around quickly.”

Tata Steel, whose European unit accounts for two-thirds of its total output, and other European steelmakers such as ArcelorMittal (MT) and ThyssenKrupp AG (TKA) reported a quarterly loss in three months ended March 31 as Europe’s economic crisis sapped demand and slower Chinese growth weighed on commodity prices. Tata Steel wrote down $1.6 billion of mostly overseas asset values, including $1.35 billion for Europe, in the period.

Europe has about 210 million metric tons of annual steelmaking capacity, while demand in a “normal market” is 150 million to 160 million tons, according to industry lobby group Eurofer.

Steel use in the European Union fell 9.3 percent in 2012 and is expected to contract a further 0.5 percent this year, Tata Steel said in its annual report. Demand may increase 3.3 percent in 2014 to 144.1 million tons, it said.

Steel Demand

Tata Steel shares fell as much as 1.4 percent to 248.05 rupees in Mumbai, the lowest since April 29, 2009. They traded at 249 rupees as of 10:52 a.m. local time. The benchmark Sensitive Index climbed 0.6 percent.

Steel demand is 30 percent lower than the pre-2008 financial crisis levels and the outlook for the euro area continues to be depressed, Mistry said. Hot-rolled steel coil, a benchmark product used in automobiles and buildings, declined 11 percent to an average price of 477 euros ($627) a ton this year from the previous 12 months, according to Bloomberg calculations based on data from Metal Bulletin.

European car sales slumped to a two-decade low in June, while a report yesterday showed investor confidence in Germany, Europe’s largest economy, unexpectedly declined in July, adding to signs the region is struggling to emerge from recession.

In the last fiscal year, Tata Steel added 2.9 million tons of capacity to its main plant in India, enhancing its total capacity by almost a third to 9.7 million tons. The company is in the process of building a 6 million ton-factory in the eastern state of Odisha, with half the capacity planned for the first phase.

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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