Coronavirus: Tata Steel seeks £500m government loan

Coronavirus: Tata Steel seeks £500m government loan
By: Business Posted On: April 25, 2020 View: 36

Coronavirus: Tata Steel seeks £500m government loan

Britain’s biggest steel producer is seeking hundreds of millions of pounds in government support as the industry grapples with a slump in global orders caused by the coronavirus.

Sky News has learnt that Tata Steel, owner of the Port Talbot steelworks in South Wales, has approached ministers to ask for a funding package worth in the region of £500m.

The request is said to be under discussion with the Treasury and the Department for Business, Energy and Industrial Strategy.

It comes after Tata Steel's big customers, which include car manufacturers, called a halt to production across Europe because of the COVID-19 pandemic.

Although some plants are to reopen in the coming weeks, economists believe a recovery in industrial production will be slow and protracted with demand continuing to be weak for some time, and manufacturers forced to cope with long-term social distancing measures.

SCUNTHORPE, ENGLAND - OCTOBER 19:  A view of the Tata Steel processing plant at Scunthorpe which may make 1200 workers redundant on October 19, 2015 in Scunthorpe, England. Up to one in three workers at the Lincolnshire steel mill could lose their jobs alongside workers at other plants in Scotland. Tata Steel UK  is due to announce the Scunthorpe job losses this week.  (Photo by Christopher Furlong/Getty Images)
Image: Sources close to Tata Steel say the talks are at a preliminary stage

In a statement this weekend, a Tata Steel spokesman said: "We continue to work with both the UK and Welsh governments to identify what support is available."

Further details of the funding request were unclear this weekend, although it is largely understood to comprise a commercial loan that would be repayable when demand for steel recovers.

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Tata Steel, which employs about 8000 people in the UK, has already been hit by a rise in raw material costs, with China's reopening after the pandemic contributing to high iron ore prices even as global demand has slumped.

Sources close to Tata Steel indicated this weekend that the talks were at a preliminary stage, and that no agreement between the company and government was imminent.

One insider said the £500m figure was a "ballpark" estimate of the company's funding need.

Tata has been wrestling with the future of the Port Talbot plant for years.

In January, Natarajan Chandrasekaran, chairman of Tata Steel's parent company, told The Sunday Times: "I need to get to a situation where at least the [Port Talbot] plant is self-sustaining.

"Whether it is in the Netherlands or here, we can't have a situation where India keeps funding the losses just to keep it going."

Stephen Kinnock, the Labour MP whose Aberavon constituency includes the Port Talbot steelworks, has urged the Treasury to increase the limit on its Coronavirus Large Business Interruption Loan Scheme (CLBILS) beyond £50m.

The Tata Steel steel plant is pictured in Port Talbot, south Wales on April 26, 2019, following an incident at the site early today. - An explosion at the Tata steelworks in south Wales left two people slightly injured, police said Friday. The authorities said numerous calls were received overnight reporting an "explosion" at the Port Talbot site. (Photo by Ben STANSALL / AFP)        (Photo credit should read BEN STANSALL/AFP via Getty Images)
Image: Tata Steel employs around 8,000 people in the UK

He said the £50m limit represented "only one tenth of what Tata Steel believes will be the cashflow impact on the company over a six-month period".

Responding to a question in the Commons from Mr Kinnock on Wednesday, foreign secretary Dominic Raab said: "I know that the chancellor is looking carefully at the steel sector in the hon. gentleman's constituency, and at all those who are not directly benefiting from this particular scheme to ensure that in ​the round we are providing the measures that we need in a targeted way to support all the different crucial elements of the economy."

Mr Raab's answer has offered hope to Tata Steel that its request will be viewed sympathetically, particularly after British Steel, the industry's second-largest player, received hundreds of millions of pounds of taxpayer support after it collapsed into liquidation nearly a year ago.

British Steel was recently sold to Jingye Group, a Chinese conglomerate, and is expected to resume production at its Skinningrove works next week.

The industry association pleaded last week for government support to see it through the crisis.

"Whether it is constructing HS2 and Northern Powerhouse Rail or providing the steel for our new hospitals, the steel industry stands ready to support the national effort as well as the Government's infrastructure revolution and levelling up agenda," Gareth Stace, the director of UKSteel, said.

A picture shows Tata Steel's steel plant in Scunthorpe, north east England, on March 31, 2016.
Britain is "doing everything it can" to help the country's stricken steel industry following Tata Steel's decision to put its British business up for sale, Prime Minister David Cameron said. / AFP / LINDSEY PARNABY        (Photo credit should read LINDSEY PARNABY/AFP via Getty Images)
Image: The loan request comes as many of Tata's customers have halted production due to the COVID-19 outbreak

Tata Steel said last month that "a sudden drop in European steel demand after a number of steel-using manufacturers paused production, including European car manufacturers" had prompted it to slash production at some of its mills.

The company added that it was continuing to supply steel to supply chains in industries such as food packaging and construction materials for emergency medical buildings.

Roughly 1500 members of its UK workforce have been furloughed under the Coronavirus Job Retention Scheme, according to company insiders.

Tata Steel said: "A number of European governments have introduced job retention schemes to support businesses impacted by coronavirus which Tata Steel will be using wherever appropriate.

"This includes a scheme in the UK which will lead to some employees being asked to take temporary leave."

"As a responsible employer, we will use this and other national schemes while available, and where our own activities are much reduced.

"It will allow us to retain the skills and experience we need for when steel demand recovers."

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