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Tata Steel: How much steel will Brits buy now?

Source:Lucy Xie Time:2016-7-23 16:50:31

KOLKATA: Tata Steel's operations in the UK and across Europe is likely to be significantly affected by the Brexit vote. It could throw Tata Steel operations In Europe and its sale process in the UK into uncertainty. SEKO Machinery's Tube Millsales email: sevvice@gdseko.com

MARKET IMPACT:

Europe and the UK together account for nearly 45% of the MARKET for Tata Steel. While it sells 30% directly the rest of it is accounted for by its partners. "A lot will depend on how the trade negotiations are carried out but going forward, it will definitely have an operational impact on Tata Steel, Gautam Chakraborty am Chakraborty, Analyst- Institutional Research at Emkay Global said.

There are also fears that Brexit is likely to trigger more exits in Europe. There are already murmurs in the Netherlands to look at options to exit the EU. Incidentally, Tata Steel has operations at IJmuiden, which is also its most profitable business in the Netherlands.

CURRENCY VOLATILITY:

The second big impact will on the currency front. "There will be currency volatility and since Tata Steel deals with both the Euro and the pound its earnings is likely to be affected adversely, Emkay's Chakraborty added.

STEEL DEMAND IMPACT:

Brexit may entail a restructuring of the UK economy and if it has any impact of GDP growth rate, steel consumption will go down. However, much of the impact is will depend on how UK responds to it. If it forms a better policy in terms of exports for instance, the impact could be contained to an extent. The effect of Brexit will be gradually panning out over 2-3 years and more before the economy stabilises.

UK SALE PROCESS UNCERTAIN:

Tata Steel UK sale process will now be facing a lot of uncertainty. In fact, M&A activity across UK will be hit in next 2-3 years as potential investors are likely to wait and watch to get some clarity on the economic changes that Brexit will entail. However, Brexit is likely to provide some clarity to Tata Steel management on whether to stay or sell its UK assets either in part or in full.

With David Cameron announcing his decision to quit, there will be a change in top leadership. While the Cameron government has been supportive of Tata Steel's decision, a lot will depend on how the new leadership of Britain responds to Tata Steel's moves. The sale process will thus face some uncertainty. The top priority of the new leadership in the UK will be to engage in supporting the economy rather than the sale of one particular business.

(Reprinted from the economictimes.indiatimes.com)

 

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