January 11, 2011

Tata Steel — quarterly performance and Teesside arbitration update

Tata Steel’s Indian operations completed the third (December) quarter of FY’11 with 1.752 million tonnes of saleable steel production. Third-quarter deliveries at 1.637 million tonnes were nearly 3 per cent higher compared to the corresponding period of last year and about 1 per cent lower than the second (September) quarter of FY’11. The pricing environment in India in the third quarter was mixed, with prices for flat products being marginally lower compared to the second quarter, while prices for some long products increased.  

Tata Steel’s European operations produced 3.7 million tonnes of liquid steel in the third quarter of FY’11 and recorded deliveries of 3.5 million tonnes, nearly 8 per cent lower compared to the corresponding period of last year and nearly 1 per cent lower compared to the deliveries achieved in the second quarter of FY’11. While production and deliveries in the third quarter of FY’11 were in line with the first half of FY’11, the improvements in the financial performance of the first half of FY’11 could not be maintained as higher raw material prices and reduced apparent demand due to seasonal slowdown, amongst other factors, adversely affected margins at Tata Steel’s European operations.

Tata Steel’s South East Asian operations produced 721kt in the third quarter of FY’11, which was approximately 1 per cent lower than the previous quarter, and recorded deliveries of 776kt, nearly 14 per cent lower compared to the corresponding period of last year and nearly 2 per cent lower than the second quarter of FY’11. The South East Asian operations were marginally affected in the third quarter of FY’11 compared to the second quarter of FY’11 by rising scrap prices and delayed increase in the finished product prices.

On a group-wide basis, the volume of steel products sold by Tata Steel declined marginally compared to the second quarter of FY’11; with the pricing environment in the third quarter, Tata Steel expects that net sales for the third quarter will be flat compared to the second quarter. Due to the increased raw material prices experienced in the third quarter, Tata Steel further expects its operating results for the third quarter to decline somewhat in comparison to the second quarter. On December 27, 2010, a fire occurred in one of Tata Steel’s pickling lines at the Ijmuiden plant in the Netherlands. The fire was extinguished without any injuries to any employees, and there was no interruption to the iron and steel making operations since the line was not operating at the time of the fire. Although Tata Steel expects customer deliveries to be met by diverting scheduled production to alternative facilities, it has declared force majeure on deliveries of certain strip products from the IJmuiden site.

Tata Steel UK (TSUK), a subsidiary of Tata Steel, has received a partial final award in its favour in an ongoing arbitration proceeding between TSUK and certain off-takers of its Teesside Cast Products plant (Off-Takers) on January 5, 2011. The arbitral tribunal amongst other things found that the Off-Takers did not validly terminate their off-take agreements. The arbitration proceedings are being held under the auspices of the ICC International Court of Arbitration. The arbitration proceedings will now move to the next phase of determining the amount of damages. The production and delivery numbers of the third quarter of FY’11 are provisional and subject to limited audit.