Tata Steel Swings to Quarterly Loss as Imports Hurt Margins

  • India, Europe face rising imports at cheaper prices from China
  • Sales slide 17 percent during the October-December quarter

Tata Steel Ltd., India’s biggest producer, posted a third-quarter loss as rising imports of the alloy pressured prices and a global glut hurt its European operations.

Tata’s net loss was 21.3 billion rupees ($315 million) in the three months through December, compared with a profit of 1.57 billion rupees a year earlier, the Mumbai-based company said on Thursday. Sales, over two-thirds of which came from outside India last fiscal year, fell 17 percent to 278.2 billion rupees, short of the 283.4 billion-rupee average estimate in a Bloomberg survey.

Economic slowdown in China, the biggest producer and consumer of metals, is pummeling the global steel industry as it exports its surplus in the face of faltering domestic demand. Last week, India’s No. 3 mill JSW Steel Ltd. swung to a record quarterly loss, while Japan’s three biggest producers have all cut full-year profit forecasts due to deteriorating markets.

Steel exports from countries such as China, Russia, South Korea and Japan have surged to all-time highs on the back of lack-luster domestic demand, excess capacity and competitive currencies, Tata Steel said in a statement. “These unfairly priced imports are distorting the demand-supply balance in many regions, depressing domestic prices and undermining the profitability of many large steel producers,” it said.

Safeguards

The loss included an exceptional item of 7.12 billion rupees on account of non-cash writedown of fixed assets and restructuring linked to its European operations and an employee separation plan in India, the company said. The analysts surveyed by Bloomberg had estimated a loss between 6.8 billion rupees and 17.1 billion rupees.

Although imports moderated in the last couple of months of 2015, India is contemplating a further tightening of controls to protect domestic firms. Last month, the European Union imposed tariffs as high as 13 percent on steel from China.

The U.K.’s regulatory costs and strong pound led to announcements to reduce jobs and mothballing of assets, the company said. "Regulatory action on a European and national level is needed to enable the business to compete fairly."


Pension

"China is dumping steel everywhere around the world," Rahul Dholam, an analyst at Angel Broking Ltd., said before the earnings. "India can at least compete with them because it is a low-cost producer, but that is not the case with the long steel business in Europe. The salaries and pensions the company has to pay are too high."

Tata Steel, in a bid to reduce debt by selling loss-making units, is in the final stages of discussion with Greybull Capital LLP to sell operations in the U.K. and France. The company last month announced 1,050 job cuts in the U.K.

Earnings before interest, taxes, depreciation, and amortization at its Indian business fell 23 percent, while Ebitda at its European operations reported a loss of 6.75 billion rupees compared to a profit of 13.1 billion rupees a year earlier.

Tata’s shares closed 0.9 percent higher at 225.95 rupees in Mumbai before the earnings were announced. The stock has slumped 13 percent this year, after losing more than a third of its value in 2015 for its biggest decline in four years.

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