Bloomberg News

Tata Steel Unexpectedly Turns to Loss on Weak European Demand

February 13, 2012

Feb. 10 (Bloomberg) -- Tata Steel Ltd., India’s biggest producer, swung to an unexpected loss in its third quarter after raw material costs gained and demand and prices fell in Europe, its largest market.

The loss, including that of unit Tata Steel Europe Ltd., was 6.03 billion rupees ($122 million) in the three months ended Dec. 31, compared with a profit of 10 billion rupees a year earlier, the Mumbai-based company said yesterday in a statement. The median profit estimate of 28 analysts in a Bloomberg survey was 2.57 billion rupees. Sales gained 15 percent to 329.6 billion rupees.

The debt crisis in Europe, which contributes about two- thirds of Tata’s production, has cut steel demand and prices. Global use of the alloy will rise 4.5 percent in 2012, the slowest in three years, according to the median estimate of 14 steelmakers, analysts and traders surveyed by Bloomberg.

Total costs rose 22 percent to 325.5 billion rupees, while raw material expenses climbed 21 percent to 126.2 billion rupees in the quarter. Tata Steel, which had a net debt of $9.52 billion rupees as of Dec. 31, earned 1.38 billion rupees from sources other than its main business, the company said.

Tata Steel Europe Chief Executive Officer Karl-Ulrich Koehler in November predicted a “difficult” third quarter. The European unit, which buys all the raw material it needs from outside suppliers, faced a 17 percent increase in coking coal prices, compared with a 3.5 percent increase in the price of steel hot-rolled coils in the last quarter.

India Demand

Demand for the alloy is expected to improve should India’s central bank lower interest rates, Managing Director H.M. Nerurkar told reporters yesterday in Mumbai. The Reserve Bank of India increased interest rates 13 times since the start of 2010 to curb inflation. Subir Gokarn, the deputy governor of the bank, said last month the monetary cycle has peaked.

Tata Steel plans to add 2.9 million tons of annual capacity at its Jamshedpur facility this quarter, taking total production to 10 million tons, Nerurkar said.

The company on Dec. 2 said it mothballed the Llanwern hot strip mill in Newport, U.K., cutting 115 jobs. The mill will remain shut until the U.K. economy and steel demand justify a restart, it said then.

Rival ArcelorMittal, the world’s largest steel producer, reported on Feb. 7 fourth-quarter earnings before interest, tax, depreciation and amortization fell to $1.71 billion from $1.85 billion a year earlier. That compared with the $1.68 billion median estimate of 16 analysts surveyed by Bloomberg. First-half Ebitda is likely to exceed results in the prior six months, while still being lower than a year earlier, the company said in a statement.

Tata Steel shares gained 0.3 percent to 452.15 rupees in Mumbai yesterday. The earnings were announced after the market closed. The benchmark Sensitive Index gained 0.7 percent.

--With assistance from Rajesh Kumar Singh in New Delhi. Editors: Indranil Ghosh, Abhay Singh

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editors responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net; Andrew Hobbs at ahobbs4@bloomberg.net


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