Tata Steel slumped to another loss in the three months to the end of June as the crisis that has engulfed its UK operations weighed on the company’s global results.
The Indian steel firm’s European division, which includes Port Talbot steelworks in Wales and several other plants in the UK, enjoyed an operating profit of £90m during the quarter.
The company put the improved performance down to cost cuts in the UK and a boost in exports thanks to the weakness of sterling after the EU referendum.
But Tata Steel fell £360m into the red on a group-wide basis after tax, when including a £370m loss on the sale of its UK long products business.
Tata sold the division to investment group Greybull Capital for a nominal sum earlier this year in a deal that saw it crystallise a loss on the asset.
Executive director Koushik Chatterjee said that, despite the impact of the UK on Tata’s balance sheet, its British operation enjoyed a “significant benefit” during the quarter from the weakness of the pound.
But he did not offer any update on discussions with German rival ThyssenKrupp about setting up a pan-European joint venture.
Tata suspended the sale of Port Talbot in July to give it time to explore a larger tie-up with ThyssenKrupp that the firms believe could help address overcapacity in the European steel industry.
One stumbling block is the British Steel pension scheme, which has 130,000 members and a £700m funding deficit.
Chatterjee said: “We need more time – there is the complication of pensions. All bidders come with a univocal approach – that pensions have to be separated from the business.”
He warned observers not to read too much into the £90m quarterly operating profit within Tata Steel Europe, given that this was due largely to the weakness of the pound.
“Currency is always short term,” he said. “Today we see a more depreciated pound, which is where exporting competitiveness has improved. That provides a lever [for the UK business] to sustain itself … but that’s very fickle.”
The company added that the currency effect will not be beneficial only to UK exporters.
“The weaker pound is expected to improve [the] UK’s short-term competitive position on exports. However, it will add cost pressure due to higher cost of raw materials purchased in US dollars.”
It also warned that the UK’s growth “may slow down following the referendum result”.
However, Chatterjee was more circumspect about the likely long-term effect of Brexit.
“We don’t know how trade agreements will pan out between UK and the rest of EU and rest of world. We’ve got to watch and wait and see,” he said.
Nonetheless, he was optimistic about the government’s commitment to supporting key industries.
“There is a clear signal to look at industrial strategy in a more focused manner. When the government has more to talk about, we’ll get to know more about the industrial strategy for the UK.
“These are early days and we should give the government time to frame its thought, because it also has huge work ahead in terms of the whole Brexit complication.”