The owner of Port Talbot steelworks in south Wales has made its first pre-tax profit in 13 years thanks to record steel prices and a recovery in demand across Europe as pandemic restrictions eased.
Tata Steel UK (TSUK) reported a pre-tax profit of £82m in the year to the end of March, a dramatic improvement on the £347m and £654m losses of the previous two years.
The company, which said it was still in talks with the UK government regarding the major investment required to move to greener steel-making, recorded an increase in revenues of 58% year on year – up from £1.97bn to £3.1bn.
Britain’s largest steelmaker said this surge was fuelled by a 53% increase in the average revenue per tonne of steel, with prices soaring to record levels since the start of the pandemic, as well as a 3% increase in deliveries.
“This improvement is attributable to the recovery of the European steel market from the weakened market conditions caused by Covid-19 pandemic the previous year,” the company said in its annual financial results.
However, TSUK, which derives 59% of total revenues from the UK and almost 37% from wider Europe, warned that the return to profitability came as costs continue to climb, with energy prices “rising significantly” in the second half of its financial year. Total operating costs climbed from £2.2bn to £2.98bn year on year.
Port Talbot, the UK’s largest steelworks, produced 3.5m tonnes of liquid steel in the year to the end of March, an increase of 100,000 tonnes on the prior year.
The company said global steel demand increased by 2.7% in 2021 – up from just 0.5% growth in 2020 – with global production rising 3.6%.
TSUK said the recovery in the automotive sector had been “particularly strong”. However, supply chain issues, especially the ongoing shortage of semiconductors, hit steel demand in the automotive sector in the second half of the company’s financial year.
Employee numbers dropped from 7,992 to 7,890 year on year as at 31 March – as the total wage, pension and redundancy bill climbed from £313m to £406m – with the company warning on the potential impact of the cost of living crisis.
“Higher costs of living for employees present additional challenges for TSUK in ensuring expectations on pay and conditions are addressed for all parties and that the ongoing commitment of employees is properly recognised,” the company said. “Maintaining a critical mass of engineers and other specialist functions remains a challenge.”
Despite the return to profitability the company said it still needs UK government support in order for its steel business to remain viable in the long-term and switch to greener production methods.
“TSUK continues to have discussions with the UK government to seek support for the transition to low-carbon steel-making, which is a vital part of securing a long-term sustainable future for the business,” it said.
At the end of its financial year the company reported net debt of £852m, up from £780m a year earlier, while total borrowings hit £952m, up from £836m.
TSUK last reported a pre-tax profit in 2009 of £13m. It said that while global steel demand would rise by 0.4% this year, its core region of Europe, which accounts for 96% of total revenues, would see a 1.3% contraction among EU countries.
“For 2022, the outlook is highly uncertain due to the war in Ukraine,” the company said. “This event has had a major impact on the EU due to its reliance on Russian energy and its geographic proximity to the conflict area. There are further downside risks from Covid virus infections, higher energy costs and rising interest rates.”
