Tata Steel, India’s biggest producer of the alloy, will pare staff and energy costs as it reduces output to combat a plunge in prices.The company plans to save at least £ 350 million ($525 million) at its U.K.-based Corus Group unit and Rs 300 crore ($60 million) at its Indian operations by March 2009, Managing Director B. Muthuraman said.
The credit crisis has stifled economic growth worldwide, and has also reduced demand for metals. Corus, which generates more than two- thirds of Tata’s output, said European steelmakers are facing a “tremendous challenge” after a collapse in global demand.
“There is a downturn in the economy,” Muthuraman said. “We want to make sure we weather this storm well,” he added. Tata Steel, which last month had its credit-rating outlook cut to “negative” by Moody’s Investors Service because of the challenges facing Corus, has plunged 84 per cent this year, making it the second-worst performer on the benchmark Sensitive index.
Corus, joins ArcelorMittal, the world’s biggest steelmaker, in planning cuts. Corus has said that production by March 31 will be 30 per cent less than planned as sales have declined significantly since September. The company has cut 400 jobs, and has asked the Dutch government to partially fund temporary cuts in the hours of more than 4,000 workers from next month. Corus employs 11,300 workers at its Ijmuiden plant near Amsterdam.“We plan to ask for a similar package from the U.K. government,” Philippe Varin, CEO of Corus Group said.
Prices Halve “We have seen a significant slowdown in order and delivery and expect it to continue in the first quarter,” Varin said, adding that steel prices had halved from their recent peak to about $600 a metric tonne.
In India, Tata plans to lower costs by reducing purchases of imported coal and improving furnace performance, Muthuraman said.
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Corus, which imports all its iron ore and coking coal needs, may benefit from the drop in raw material prices when contracts are renewed in January, Macquarie Group said. Corus has stopped buying materials after September because the current stockpile is enough to last until the end of this month, the brokerage said.
“Management expressed high confidence in settling these contracts at much lower rates,” Macquarie analyst Rakesh Arora said. While the current quarter may be tough for Corus, it will return to its normal profitability from the fourth-quarter ending March 2009, he said.
China Demand
Iron-ore contract prices may halve to $46 a tonne by next year as demand from China slumps, according to Australia and New Zealand Banking Group. Cash prices for iron ore delivered to China have slumped 59 per cent this half, prompting Rio Tinto Group, the second-biggest exporter, to delay shipments.
Tata Steel shares gained as much as 11 per cent to Rs 165 in Mumbai trading, the most since November 10, and were at Rs 162 at 11:17 a.m. local time. The stock touched Rs 137.5 on November 24, the lowest in at least five years.
Macquarie didn’t revise its earnings estimate and set a 12- month price target for the stock of Rs 570.The company yesterday reported net income rose to Rs 4,700 crore in the three months ended September 30, because of increased output of high-grade products.
Tata revised lower the year-ago profit of Rs 3,300 crores to Rs 1,490 crore as it has stopped a previous practice of reflecting the value of Corus’ pension funds in earnings.
Tata acquired Corus for $13 billion last year to become the world’s sixth-biggest steelmaker.