Tata Steel incurs Rs 2,209-cr loss in Q1

FALLING demand for steel products in the US and the UK left Tata Steel with a consolidated Rs 2,209-crore loss in its fiscal first quarter.      The near-40% fall in steel prices and high raw material costs in the three-month period hit the world's sixth-largest steel maker by capacity hard. The company earns more than half of its business from its overseas units. It posted a consolidated net profit of Rs 3,901 crore in the same quarter last year.      "The results reflect the impact of the global economic downturn, particularly in the developed markets," said managing director B Muthuraman. "The group is currently undertaking several restructuring initiatives internally. The global recovery is expected to be slow, and the company will continue to focus on operating performance and liquidity management," he added.      The Tata Steel scrip fell about 5.1% to Rs 436.40 on BSE on Thursday, on a day when the broader index rose marginally.      Tata Steel's European operations have been operating at half capacities due to closure of units, a depleted workforce and an overall reduction in steel demand. Steel cos also hit by rising coal prices      The commodity, which has applications ranging from cars and consumer goods to homes, saw one of the slowest quarters, as the global recession forced users to cut down on purchases.      Tata Steel Europe CEO Kirby Adams said: "We anticipated that the first two quarters of the current year would be a difficult one for European steel makers, which is why we started taking action early this calendar year to align our output and costs to the lower demand levels in Europe. The unexpected termination of the Teesside off-take agreement in April 2009 by the four off-takers cost Tata Steel Europe Rs 244 crore ($51 million) in EBIT and Rs 742 crore ($155 million) in operating cash flows during the first quarter."      The grim outlook by Tata Steel comes in the wake of recent robust estimates by large broking houses. In an August report, Morgan Stanley said Tata Steel could likely see an earnings revival in the European operations beginning third quarter of current fiscal. "Strong global steel output growth (4% month-on-month, though an 11% on year decline) in July 2009 seems to be indicative of an improvement in steel demand, which looks encouraging," the report said, adding, "This signals a meaningful increase in Tata's capacity utilisation."      Tata Steel's overseas revenue in the June 2009 quarter almost halved, compared to a 10% decline in domestic net sales. Unlike in the overseas market, steel prices in India are partly under government control. Also, domestic sales volumes grew 22% as against a 35-40% decline at Corus.      The absence of an integrated operation at Corus is also seen contributing to Tata Steel's large consolidated loss. Unlike Tata Steel India, where iron ore and coal mines are captive, the European units depend entirely on market purchases of these commodities, and are, hence, subject to extreme volatility in their prices.     Strong demand has pushed coal prices to rebound from a 35% decline last year, with international news agencies reporting that coal futures for September delivery at Rotterdam have risen 39%. According to an ETIG analysis, a comparison with ArcelorMittal, the world's largest steel producer, shows Tata Steel's overseas operations had a negative EBITDA of $82 per tonne of steel, compared to a positive EBITDA of $104 per tonne by ArcelorMittal's flat carbon Europe business.