Klesch Group withdrew from talks to buy Tata Steel Ltd.’s Scunthorpe, U.K.-based business in a setback for India’s largest producer that highlights the industry’s growing challenge from an upsurge in Chinese shipments.
“Governments don’t know how to handle cheap Chinese steel imports, so the company and the industry are bleeding to death,” Chairman Gary Klesch said in an e-mailed response to questions. The withdrawal of Geneva-based Klesch was reported earlier on Tuesday by the Financial Times.
Mills in China, the biggest producer, are flooding markets with record levels of steel shipments as domestic demand slows for the first time in a generation. The exports are spurring increased trade friction across Europe, Asia and the U.S. as prices drop and profit margins shrink. Tata Steel wrote off its long-products business in the U.K, saying in May it expected to take a non-cash impairment of 50 billion rupees ($782 million).
“The industry and the company are not playing on a global, level playing field,” Klesch wrote in the e-mail when asked why he’d backed out of the talks. Tata Steel’s Chief Financial Officer Koushik Chatterjee declined to comment on Tuesday on the withdrawal by Klesch, citing confidentially agreements.
Shares of Tata Steel fell as much as 0.8 percent to 246.05 rupees and traded at 247.45 rupees at 1:04 p.m. in Mumbai. The stock has declined 38 percent this year, compared with the 1.6 percent gain in the Sensex.
“This is negative for the company,” Giriraj Daga, a portfolio manager at SKS Capital & Research Pvt., said from Mumbai, referring to Tata Steel. “The company will now have to continue with the way they were earlier by restructuring the operations, cutting jobs. That problem will continue.”
Tata Steel said last month it will refocus its specialty and bar business on markets such as aerospace, and 720 positions would become redundant, mainly in Rotherham. Tata Group Chairman Cyrus Mistry said on July 20 the company’s European operations may be forced into more ‘asset-right sizing’.
Long products are used in the construction and engineering sectors and Scunthorpe is Tata’s long-products hub in the U.K. Klesch entered talks to buy the steelworks in October.
Having bought Corus Group Plc for $12.9 billion in 2007, Tata Steel has been cutting back on its operations in the U.K. since the global financial crisis. It has two other plants in the U.K. and one in the Netherlands.
Steel exports from China surged 28 percent to 52.4 million tons in the first half, according to Chinese customs data. Overseas sales from the country have risen to extraordinary levels, according to Credit Suisse Group AG.