British govt financial package may help Tata Steel UK narrow losses

The UK government’s 500 million pound financial package to Tata Steel UK is expected to narrow the steel maker’s losses on the back of lowered production and environmental compliance costs, according to CreditSights.

Tata Steel’s credit profile could remain resilient even amid lacklustre steel price dynamics, aided by strong captive iron ore resources, expectations of moderating coking coal input costs, and positive signs of a gradual turnaround of its loss-making European business, the Fitch Group company said in a statement on Wednesday.

The UK government has announced it will pay up to 500 million pounds to facilitate the green transition of steel maker’s Port Talbot plant in South Wales, UK. This will entail replacing Port Talbot’s blast furnaces with environmentally friendlier electric arc furnaces (EAF) for a total cost of 1.25 billion pounds.

“We see the deal as a mild credit positive for Tata, and we believe losses at Tata Steel UK could narrow on the back of lowered production and environmental compliance costs, once the EAF commissions,” it said.

The UK government’s financial aid will also reduce the company’s capex burden and support its transition towards greener steel production, CreditSights said.