Brace-up to match Jamshedpur on margins: Tata Steel to Corus

London, Nov 20, 2008 (Asia Pulse Data Source via COMTEX) -- TATLY | Quote | Chart | News | PowerRating -- Tata Steel has asked employees at its Corus unit to "brace themselves" to bring profit margins of European business closer to its Jamshedpur plant back home, but ruled out closing any of the four main plants in Europe.

Asserting that Corus acquisition, which was consummated much before the ongoing downturn began in the steel sector, remains a "very good deal", Tata Steel chief B Muthuraman told Financial Times in an interview that there was a significant scope for improving efficiency and cut costs at Corus plants.

"We continue to think this was a very good deal for us... This acquisition is like a marriage. You don't suddenly think that marrying your wife is a mistake just because of some other event that's happened in the world," Muthuraman said.

Tata Steel completed acquisition of Corus in a deal valued at about 13 billion dollars last year, after months of a tough bidding war with Brazil's CSN, and the deal was seen as a major platform for the Indian steel giant's global expansion.

However, steel sector has been hit hard in the recent months by the downturn in worldwide economy and companies across the world, including market leader Corus have cut down their production due to a slump in demand from sectors like auto, construction and engineering.

Tatas have also announced to slash production at its British and Dutch plants of Corus by 30 per cent till March.

The British business daily quoted Muthuraman as saying that employees in Corus's steel operations will have to brace themselves in the next few years to bring profit margins closer to the levels being seen at Jamshedpur.

Tata Steel has a total capacity of close to seven million tonnes at Jamshedpur in Jharkhand.

Muthuraman said that the Jamshedpur plant has the benefit of cheap iron-ore, local mines and "more advanced" operating procedures than in most parts of Corus's plant network. "Through measures such as improving the flow of raw materials and steel through the production system, there is a lot the Corus plants can do to increase efficiencies and cut costs," Muthuraman said.

However, he asserted that all four of Corus's main production sites -- three in the UK and one in the Netherlands -- are "good plants" and allayed the fears that at least one of them could be closed in the longer term.

Tata Steel also plans to improve margins at its Corus business by using iron-ore sourced from its own mines, which is expected to begin over the next few years.

"Corus needs about 30 million tonnes of iron ore a year... Hope that, by 2013, it will get about half of this from its own sources - as a result of mine exploration projects it is starting in several countries - compared to the situation at present where it has to buy virtually all its supplies from outside vendors," Muthuraman said.

Corus plans to spend about 140 million dollars for opening two mines in South Africa and Canada, which could produce 10 million tonnes of iron-ore a year by early next decade, while it is also mulling another mining project in Ivory Coast, the report said.

The captive mines insulate the company from the steep rises in iron ore prices and give it a similar position as the Jamshedpur plant, it added.

About the current crisis in the steel industry, Muthuraman said, "human beings have very short memories... The steel industry has had a wonderful few years, which some people thought could go on for ever."

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