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Durudarshan - Investment Analysis

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Can the British steel industry be saved?

Posted on April 8, 2016 at 5:40 PM Comments comments (4)
Today's disheartening figures about the U.K. economy as well as similarly dismal figures from Europe suggests the last quarter has seen a slow down in manufacturing in the U.K. coupled with increased imports from E.U. 

There seems a pause, some great hesitation, in jobs creation as well as in purchasing, planning and production of goods.  This is being attributed to the uncertainty created by the forthcoming Referendum on 23rd June, when Britons will decide whether to stay In or Out of the European Union.

No. 10 Downing Street on behalf of HM Government has started to send a 50 page newsletter to all the 27 million households in the land, informing us all about the benefits of staying In, which Prime Minister David Cameron is praying should happen.  He is counting on it, as are our partners in European Union, and indeed the whole of Europe.

When David Cameron went to Brussels to renegotiate the terms of Britain keeping within the European Union, he seems to have gone there with a clear plan.  If he got favourable terms, Britons could be relied on to agree to the bargain (the Referendum would be a formality, the choice this great democracy offers all its citizens to have a say on such an important issue).  Alas, to his dismay, some of his best chums have started to brand themselves as Eurosceptics, such as London Mayor Boris Johnson.
While he could not have counted on everyone in Britain turning into Europhiles, he may find that in their wisdom perhaps 51 percent if not more will be, at the Referendum.  In the meantime, all purposeful activities contingent on the outcome seem to have been suspended in mid-air, as it were.

I hope doves of peace and wisdom will rise and clatter their wings, and switch people back onto a pleasant reality.  If Britain leaves the E.U., there may be a recessionary environment for us all (Britain and a European Union from which we would become estranged), and that is something we would all rather not bring upon ourselves, that would be quite sensible.  But in the meantime, the temporary hiccups seem like the cost being levied on us.  Hopefully, if everything goes well and the result is as would benefit Britain and her people, maintaining jobs and trade and saving our currencies from any adverse impact, then things may restore to an upswing after 24th June.  My gut feeling is, we shall all be celebrating.

In the meantime, the same uncertainty must weigh dark clouds over the fate of the steel industry in the U.K.  Can it be saved?  1) Tata Steel's parent company which is headquartered in Mumbai will be putting out a Sale document on Monday 11th April.  This will encourage any potential buyers or saviours to step forward, knowing what is available and at what price and what involvement and commitments will be necessary.
2) A lot of commodity merchants, dealers and speculators have lost a lot of equity in their holdings, with plunge in prices, including that of steel, from about $1200 right down to £91 per metric tonne just recently.  Some have made small fortunes by the same token; their judgement has served them right.
Sanjeev Gupta of Liberty House may be one of the lucky ones.  If so, his involvement should augur well for any company.  He has bought stakes in several companies, which seem to be on the mend in the short period of time.  His method is to infuse synergies with innovation and encourage all hands in productive purposefulness.  He is intending to use burners which can be switched off at close of day, melt scrap to produce recycled steel, use electricity from his own electric generation company, thereby making steel cheaper, like his Dad used to do in India and which he is going to do at his plants in Scotland.  It seems a winning strategy.  Perhaps Tata Steel could have him as a partner to manage the operations at their various plants?  Bringing costs down will be a huge help in saving this industry.
3)  The government could introduce, together with our friends in the E.U., tariffs on imports of steel from China, Korea and Taiwan.  The United States, where electricity is 280 percent cheaper than in Britain, imposes huge tariffs.  Britain and E.U. partners cannot afford not to, in a bid to save the steel industries in all these nations.  Our friends in China, Korea and Taiwan should be encouraged to market their huge stockpiles in a mercantile fashion, releasing it a lot slower onto the world market.  That may turn out a blessing for them, if it means a better price.  They will have to be patient, until the worldwide economic Recovery regains its step and continues on.  Somehow, can you not imagine the turning point is now not far away?  I believe it will be in seven months (first the clarity after the Referendum in UK, then the election in the U.S.)  Basic Resources and Oil have started to put a bottom in their markets, so very likely this forecast will prove to be true.  Today, when I heard about the building of the Voi Railway Bridge in Kenya, to connect it with Rwanda and Burundi, I recognized a clear signal that Recovery is progressing throughout the world. 
4) Tata Steel Europe Ltd is showing significant losses due to the depressed prices of its stock.  Anyone who buys it now will be buying an absolute bargain.   It will be a matter of time and patience before the price picks up again.  Some shrewd businessmen with the readily available few billion pounds will rise up to buy it, should it even be in the guise of a Saviour, and should be welcomed.
(Could be in addition to Mr Gupta or the Mehoyas brothers).

Wish you a joyful weekend,  and hopefully a happier picture in the weeks ahead.


Kind regards,
Durudarshan H. Dadlani


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