ROUGH PATCH

Mumbai, May 8: The $62.5-billion Tata group’s troubles in the United Kingdom seem to be multiplying.

After its talks with the British government on a rescue package for Jaguar-Land Rover ran into rough weather, Tata Steel may have to mothball a plant in northeast England.

In an announcement made on Friday, Tata Steel — the world’s sixth largest steel maker — said it might have to mothball Teeside Cast Products (TCP), a plant owned by the company’s European arm Corus, after a major contract with customers was cancelled.

The company has started discussions with TCP’s employees and representatives on what can be done to mitigate the impact of this development on the 1,920 employees at the plant. The decision could lead to a significant number of redundancies at the plant, which has a capacity of 3 million tonnes.

Four European firms that had signed an agreement in 2004 with Corus guaranteeing purchase of 78 per cent of the plant’s production for 10 years have apparently reneged on their contractual obligations.

The four international slab buyers were Italian steel maker Marcegaglia, South Korea’s Dongkuk Steel, Alvory SA and Duferco Participations Holding Ltd.

The Tatas acquired Corus in February 2007 for over $12 billion. The agreements with Corus predate the Tata buyout.

A London-based spokesperson for Corus told The Telegraph: “The steel slab market is very small. The consortium forms a majority of the market for buying steel slabs. Essentially, these slabs are sold to other steel makers. Since the number of customers is very limited, there are few options to look for alternatives.”

While Teeside Cast Products may become unviable after the consortium backed out of the contract, the operation of Teeside is profit neutral for Corus.

“This plant has been selling steel slabs to the consortium at the cost of production. The four firms profited hugely from this arrangement in the first four years of the contract,” said the Corus spokesperson.

TCP is now pursuing legal means to enforce the terms of the contract and has started a 90-day consultation process with the plant’s employees.

“I am disappointed that the consortium members have seen fit to take this irresponsible action. Their unilateral termination of a legally binding 10-year contract could bring to an end a fine heritage of steel making at Teeside,” said Corus CEO Kirby Adams.

Marcegaglia and Dongkuk, two members of the consortium, had signed a memorandum of understanding only in late January with the Tatas to buy an 80 per cent stake in TCP. Media reports indicate that these two buyers have now backed out as the industry continues to face a downturn.

The Corus spokesperson, however, said, “We have not been officially informed of the two offtakers’ intentions to back out of the MoU signed with us.”

Corus has been restructuring its assets in the UK and Europe for a while. It sold two aluminium smelters in the Netherlands and Germany to an affiliate of UK-based investment group Klesch a few months ago. It has also shut down some downstream facilities and moved others to new locations in England.