Tata Steel Europe strike won't hit sales

Strike action by steel unions at Tata Steel Europe operations is not expected to have any immediate impact on company's sales as the producer will be having adequate inventories that can last atleast for a fortnight, said analysts. Calls made to Tata Steel management went unanswered.

A United Kingdom trade union comprising smaller unions Community, GMB, UCATT and Unite have voted in favour of a strike against Tata Steel over a pension scheme. Of the 85 per cent members (total 17,000 workers) of the four unions, 96 per cent have voted in favour of strike.

"Tata Steel Europe usually has inventories not just at its plant but also with its distribution and value chain across region. Due to this, even if the strike kicks off and continues for 15-20 days, it should not impact the company's sales," said an analyst with a local brokerage on conditions of anonymity.

The dispute is over the existing British Steel Pension Scheme (BSPS) being replaced with a "money purchase" pension scheme, which primarily hikes the retirement age from 60 to 65. The four steel unions have already offered pension savings of £850 million to the company after five months of intensive negotiations. Despite this Tata Steel UK is seeking to plough ahead with changes forcing employees to work an extra five years until they are 65 to receive their full pension, said Britain's largest union, Unite, in its press release on Friday.

Tata Steel has been complaining that its pension scheme's assets have not been growing fast enough to keep up with increases in the expected cost of providing benefits and the result has been a huge shortfall of up to £2 billion which is not sustainable for the steel producer.

"With workers offering some pension savings, the pension deficit would now be about £1.2 billion. This can be reduced further if Tata Steel also offers some portion towards the pension fund from its side," said the analyst. This will be a mid-way solution as both parties will pool in funds to bring down the deficit, said analysts. Apart from the pension fund issue, Tata Steel's scheme also hikes the retirement age from 60 to 65, which has not been well received by the workers.

At present, workers can retire at the age of 60 without an actuarial reduction. Instead the company is insisting that workers wishing to retire at 60 will lose five per cent of each year of early retirement - 25 per cent in total.

"Over this clause, the company does not have much to lose. The retirement age cannot be reduced to anything lower than 60 and so the company can call for lay-offs or can announce restructuring of salaries which will bring down employee cost for Tata Steel," said an analyst with a foreign brokerage.

Most analysts were of the view that both parties, employees as well as the company need each other and therefore some mid-way can be worked out by both side closing in the gap. Analysts were also of the view that the strike action if kicked off will not last for very long.