New UK govt could derail Tata Steel plans for job cuts at Port Talbot

The change of government in the United Kingdom could be detrimental to Tata Steel’s plans to cut jobs as part of its strategy to shut down ageing blast furnaces at its plant in Port Talbot in South Wales.

Britain’s Labour Party, led by Prime Minister Keir Starmer, has come back to power after a decade, has made it clear that concerns around job cuts at the Tata Steel plant will be given top priority. “I’m going to make sure that job guarantees are part of the negotiation that we are having. We see this as a major priority,” business minister Jonathan Reynolds told BBC on Sunday.

Tata Steel has been grappling with losses at the UK plant for several years. In the FY24, Tata Steel UK has recorded a negative EBITDA of 373 million pound and negative free cashflow of 623 million pound.

Over the past year the company had been negotiating with the UK government for support to keep the plant running. Recently, Tata Steel announced 2,800 job cuts as part of a deal with the previous UK government under Rishi Sunak. Under that deal, the UK government had agreed to invest 500 million pound to enable Tata Steel to transition to green energy. However, the deal could not be formalised before the general elections in UK.

Meanwhile, the company has already started the process of shutting down one of the two ageing blast furnaces as part of its proposed plan to built a eco-friendly electric arc furnace. The shutdown of the second blast furnace is slated for September. Tata Steel employs around 8,000 people in Britain. Tata Steel had issues a statement recently stating that it would not renegotiate the plan for the heavy-end closure or the enhanced employment support terms. 

However, Britain’s Labour Party’s victory could change that status. With the new government in place, Tata Steel unions are hoping for an improved deal with the company, which could prevent some job losses.

Last month, Tata Steel has threatened to shut its blast furnaces in the UK earlier than planned amid an indefinite strike call given by a certain section of workers in protest against job losses.

Reacting to the strike call, a Tata Steel spokesperson had said the existing steel making assets, which are near the end of their life, are operationally unstable and causing unsustainable losses of £1 million a day.

Arun Kejriwal, Director, Kris Capital said pending the final decision of the UK government, Labour party in line with its ideology will make Tata Steel retain as many employees as it can even after the green energy transition.

As part of the fresh negotiations, the new UK government will try to convince Tata Steel to cut down on the proposed job losses before it approves the £500 million package for new electric-arc furnaces, he said.

In summary, the final package when finalised should not turn out to be a trade off between efficiency and Government’s populism, said.

In April, Tata Steel announced plans to invest 1.25 billion pound to build a modern electric arc furnace in Port Talbot and offered a Voluntary Redundancy package for employees.

“Our main concern is if the proposed £500-million support package is delayed, reduced, or scrapped, given it has not been signed yet, resulting in a higher capex burden for Tata UK,” said a recent CreditSights report.

Responding to a query from businessline, Tata Steel UK CEO Rajesh Nair said, “I congratulate Sir Keir Starmer on his election victory and look forward to working with the new government on our shared goals of growing the production of green steel in the UK, and building a positive operating environment for this critical industry. In the coming days and weeks we will be engaging with new ministers over our ambitious plans to invest in and transform Port Talbot with electric arc furnace steelmaking, and to supporting our workers through this necessary but difficult transition.’