Tata Steel to discontinue its operations in UK, Units put up for sale
China’s economic growth is mostly based on infrastructure, which we all know is not an ideal image of a progressive economy. In order to complete its billion dollar infra projects China imported Steel from Asian as well as Global markets in glut, which was in addition to its own manufacturing capacity. It is reported that the quantum of steel China had imported was equivalent to rest of the world’s requirement for 2 years. To prevent further crises to unstable economy China started dumping steel to Asian as well as European markets which led to depressed steel prices in the nations.
As a consequence of the same, Tata Steel (front-runner in steel production of UK as on date) which is estimated to be losing around $1.4 million a day in its operations in UK due to depressed steel prices and high costs, has decided to sell its operations including the one in Port Talbot which supplies steel to almost 95% local manufacturers of the country. In the midst of this crises, Sanjeev Gupta, founder of Liberty House has shown interest in buying the Port Talbot plant and has already initiated discussions regarding the same.
However, looking at a bigger picture if the talks are concluded successfully, transformation of the same would take considerable time during which economy of Britain may suffer in many ways such as:
As discussed above, 95% of industries procure steel locally and they now would be requiring to purchase the same from global markets exposing them to currency exchange fluctuations and higher transportation costs.
In a view to prevent further losses to be caused due to exchange fluctuation and volatile global steel prices, such industries would prefer to stock raw material which will involve more blockage of funds in working capital, thus increasing interest costs.
Purchasing from global market means indirectly purchasing from China, which will provide Chinese government a leverage. Flooding of raw material from China may lead to further depression in steel prices.
Of 1.6 million cars produced in Britain in last year, approximately 99% of raw material (steel) was procured domestically. Importing of the same may hit the bottom-line of auto makers.
Whatever may be the outcome, it is going to be dreadful for the British economy at least in the short-term assuming that discussions between Liberty House and TATA Steel materializes. However, if vice versa happens the overall British economy will have to tread through a bumpy road.