Date: 30 Apr 2016, Economics and Finance
Question setter: Mettletest Panellist

Tata Steel UK sale

Will Tata Group achieve the sale of Tata Steel UK by June 15th 2016?


Response:


Answer: No
Confidence level: 40%
Mean confidence level (all requests): 47.40%

Justification:
The omens for UK Steel look very poor. Any potential buyer will be looking at the difficulties in turning round Port Talbot and cognisant of the losses that Tata have been unable to stem. Tata was evidently unimpressed by the turn-around plan proposed by management in the UK, which makes it unlikely that the same team can achieve a management buyout. Uncompetitive energy prices and oversupply are not going to disappear overnight. Then there is the pension fund deficit, which will deter many buyers even if they think they can cope with the commercial hurdles. There will be government help on offer; they have already agreed to take 25%. However, it is difficult to see how they can promise enough to find a buyer in the time. Tata is supposed to have set itself the deadline of mid-June to exit the UK steel industry. It is probable that interested parties will wait to cherry-pick the best bits from the receivers and that Port Talbot will lose out, despite Cameron's declarations of support.

Outcome: No
Score: 40
Mean score (all respondents): 47.40

Expert opinion:


Answer: No

Selected Expert Answer from Mettletest Panel:
Expert Answer from David Croydon, Hilltop Consultancy:
The best they can hope for in six weeks is some interim government support that will keep the plant out of mothballs. Any commercial sale - even if achieved, which is far from certain - will take months, not weeks. The sale of the Scunthorpe plant took over six months. With the entire steel market in disarray, given the over-supply caused by China, the reasons to keep UK steel going are more political than commercial. Do we want to lose our ability to produce our own steel, in the event,say, of a major conflict in which we have to radically increase arms production in very short order? How important is steel going to be anyway in the future, as poly-carbons and other materials potentially replace it? The government will want to protect the industry at least in the short term while some of these questions are resolved and to avoid the adverse publicity surrounded by closure - not to mention the unemployment costs and knock-on economic issues in the surrounding area. It is however a Labour stronghold, so the Tory high command mat not feel all that committed to the struggle. But don't expect a quick, easy resolution.

Answer: Yes

Selected Expert Answer from Mettletest Panellist:
Ultimately the British Government cannot afford to give up on UK Steel for strategic and political reasons. Cameron has been to the Port Talbot works proclaiming support and Javid told a parliamentary committee "I don't want to live in a country where we have to import all our steel.” They have already made the offer to take a 25% stake, alongside any new buyer. They do not want expectations of another 15,000 people on the unemployment register, as employment growth stalls and the EU referendum looms. Further help and concessions are almost certainly in the pipeline. These could include guarantees on the pension shortfall, a major deterrent to buyers currently, and subsidies on fuel costs to narrow the competitive gap with continental producers. There are interested parties taking a serious look at buying the company and they will be pushing the government as far as they can to gain the best possible deal. It will be difficult to achieve in six weeks but Tata Group is rumoured to have set deadlines internally to stem the bleeding of cash that their UK operations are causing. Buyers will need to decide fast and, if Tata are to be believed, will have to take all or nothing.


Outcome: No

Comment on outcome from Mettletest Panellist:
Tata has delayed any decision on the sale until after the referendum on 23rd June. In March the company seemed desperate to divest itself of the UK steel operations as fast as it could, setting an end of May deadline. Now, with positive noises from the UK government and reduced pension liabilities, it is not even certain that Tata will sell. They may keep Port Talbot and look for buyers of the speciality steels divisions. Resolution is likely in the next quarter.