European market weakness hits Tata Steel’s profit expectations

The steelmaker, whose European operations account for two thirds of its capacity, said yesterday consolidated net profit for the quarter to end-June fell to 5.98 billion rupees from 53.5 billion in the 2011 period which included one-time gains of about 40 billion. Excluding the gains, profit declined about 55 per cent.

“European steel demand is lower than expected and prices have weakened,” Karl-Ulrich Koehler, head of Tata’s European operations said. Tata Steel, whose steel deliveries in Europe fell 9.5 per cent, has been countering poor market conditions with tight cost control and a focus on product differentiation, he said. Steelmakers are struggling globally because of the debt crisis in Europe, weak growth in Japan and a slower pace of expansion in China, the world’s largest producer and consumer.

Tata Steel employs more than 2,000 people at four main sites in South Yorkshire. Its speciality steels business has two sites in Rotherham and one in Stocksbridge, Sheffield. It also has an R&D facility in Rotherham. Tata Steel employs a further 4,000 people at its steelworks in Scunthorpe, North Lincolnshire.

Tata Steel’s first quarter missed analyst expectations. A Reuters poll of brokerages had forecast net profit of 6.7 billion rupees on net sales of 328.2 billion. Consolidated net sales rose 2 per cent to 335.5 billion rupees, helped by gains in Asia.

Consolidated operating margins fell to 10.6 per cent from 15.4 per cent. Sales at its Indian operations rose 13.3 per cent to 88.2 billion rupees as demand and prices remained firm in Asia’s third largest economy.

It reported flat sales volumes in India during the June quarter at 1.59 million tonnes. Last month, Moody’s and S&P both cut their outlook on Tata Steel to negative from stable.