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Tata Steel says import pressures may increase after yuan devaluation

A rail is seen before finishing touches at the Tata Steel rails factory in Hayange, Eastern France, September 25, 2013. REUTERS/Vincent Kessler/Files

By Aman Shah

MUMBAI (Reuters) - Tata Steel Ltd said on Tuesday import pressures on the Indian and European steel industries could intensify following the devaluation of the yuan, as a flood of cheap imports from China continues to impact profitability.

Tata Steel, which said net profit in the June quarter more than doubled on the back of a one-time gain, has been hit by a combination of a slowdown in China and a devaluation of the Russian rouble over the past few quarters.

Those factors led to cheaper steel products coming on to international markets, pressuring steel prices and squeezing margins in Europe and India, its key markets.

China, a top export market for euro zone companies, devalued its currency on Tuesday after a run of poor economic data.

"Pricing pressures continue with monthly imports (into India) now at 1 million tonnes ... With the devaluation of the yuan, there is obviously some expectation that the Chinese would be a bit more aggressive in exports," TV Narendran, Tata Steel's managing director for India and southeast Asia, said in a call with analysts.

Narendran added that though the company was seeing demand pick up in some sectors, current tariff and non-tariff barriers in India were inadequate to protect the domestic industry.

The company's net profit on a consolidated basis for the period ended June 30 rose to 7.63 billion rupees ($119 million) helped by a one-time gain of 1.58 billion.

Consolidated net sales for the quarter fell 17 percent to 29.90 billion rupees.

The company, Europe's second-largest steelmaker after ArcelorMittal, also cautioned against "significant uncertainty" in the European market.

Tata Steel has been forced to cut costs and jobs following its ill-timed entry into Europe, where steel demand has languished after the financial crisis and clients have turned to cheaper imports.

"While steel demand is forecast to grow by 1.5 percent this year, it is expected that most of this extra demand will be supplied by imports," Karl-Ulrich Köhler, chief executive of Tata Steel's European operations, said on the call.

The company last week said it had spun out its long products unit, which makes items like plates, sections and wire rods, into a standalone business to better pursue strategic options after talks with Swiss-based Klesch Group failed.

Tata Steel is looking at alternatives if it can't find a buyer for the whole business and expects to have some clarity in a few months, Köhler added.

($1 = 64.2150 rupees)


(Reporting by Aman Shah in Mumbai; Editing by David Evans and David Holmes)