India-headquartered steel maker Tata Steel has rejected a rescue plan for its struggling British subsidiary and decided to sell its assets in the country.
The decision will affect 14,000 workers employed at Tata Steel’s sites across the UK including Port Talbot in South Wales, Rotherham in the North East and Shotton in North West.
In a statement issued following crisis talks in Mumbai yesterday, the firm’s board announced the decision not to proceed with a proposed restructuring plan was unanimous.
“The Tata Steel Board came to a conclusion that the Plan is unaffordable, requires material funding support in the next two years in addition to significant capital commitments over the long term, the assumptions behind it are inherently very risky, and its likelihood of delivery is highly uncertain,” the statement said.
The plan, called Strip Products UK Transformation, aimed at saving some of the UK plants including Port Talbot in South Wales.
"Following the strategic view taken by the Tata Steel Board regarding the UK business, it has advised the board of its European holding company ie Tata Steel Europe, to explore all options for portfolio restructuring including the potential divestment of Tata Steel UK, in whole or in parts," the statement added.
Tata Steel, which took over British-Dutch steel maker Corus in 2006, said it suffered ‘asset impairment’ of more than £2bn in the last five years due to the conditions in the market - mostly due to the oversupply with cheaper Chinese imports and due to the economic slowdown following the 2008 economic crisis.
Union leaders travelled to Mumbai to attend the board meeting in the hope the rescue plan would be agreed.
"This is absolutely devastating news for all our members, their families and the local communities,” said Dave Hulse, national officer of the GMB union. “Tata has let the whole of the UK steel industry down."
Unite general secretary Len McCluskey commented: "This is a very dark day for the proud communities and a proud industry which is now on the verge of extinction in this country."
Philippa Oldham, Head of Manufacturing at the Institution of Mechanical Engineers, said the decision would not only lead to losses of 14,000 jobs but would also have a serious long-term impact on UK manufacturing and several large scale infrastructure projects.
“In the latest budget, the Government announced commitment to our transport infrastructure, supporting the National Infrastructure Commission’s recommendations for Crossrail 2 and extensions of HS2 up to our northern powerhouse region,” Oldham said. “Our UK car production reported a growth of 13.1 per cent growth in February. At the heart of all these projects is the requirement for steel.”
Terry Scuoler, chief executive of EEF, the manufacturers' organisation agreed. "This is potentially a massive blow for the UK steel industry, wider manufacturing and for the local community,” he said.
"It is now essential that ongoing support is provided by the company to continue operation of the plant, which will provide time to find a suitable buyer.”
The government, Scuoler believes, needs to take all necessary steps to save the industry including making sure that all major tax-funded infrastructure projects such as HS2 and Hinkley Point use UK-made steel.
In a joint statement released by the Department for Business, Innovation and Skills, the UK and Welsh governments said they were working to find viable options to keep steel making in the UK. The government urged Tata Steel to provide enough time for buyers so be found, which could take months.
However, Business minister Anna Soubry said it was unlikely for the government to nationalise the loss-making industry. Tata Steel has been losing £1m a day in its UK steel operations.
"We want to establish a good period so we can sell it on,” she said. “That is our priority, to look for a buyer. But we are being realistic about the state of the industry.”
First Minister of Wales Carwyn Jones told BBC that the Welsh government did not have the resources to take over the running of steel plants in Wales until a buyer is found.
Port Talbot was a modern plant which has had investment and was going through a "temporary difficultly. When the market picks up again Port Talbot will be in a good position", he said.
According to Unite union leader Len McCluskey, decisions taken in the next few days will decide the futures of 19,000 workers across 14 sites, as well as the much wider industry.
Labour leader Jeremy Corbyn said the government must intervene to maintain steel production in Port Talbot for the sake of the whole economy and if necessary to take a public stake in the industry.
In January this year, Tata Steel announced 1,000 job cuts across its UK sites including 750 in Port Talbot. Thousands of steel jobs have been lost in the past year. Prices of hot rolled steel have fallen from £385 per tonne in 2014 to £215 at the end of 2015.
Up to 25,000 workers are directly employed at steel plants, with many more in the supply chain. Tata Steel’s decision could have devastating effects on communities across Wales, Yorkshire and the North East. The worst hit will be Port Talbot where over 4,000 workers are directly employed in steel-making.
China’s steel industry, blamed for the crisis, is not profitable either as it is heavily subsidised. With 70 per cent of shares owned by the government, the Chinese steel sector is believed to be losing £24 per tonne on all crude steel produced.