Tata Steel Ltd. said Friday it may close its Teesside Cast Products plant in northeast England.
Heavy job cuts at the factory, which employs 1,920, may result if Tata's Corus unit shutters it, the company said. It added that it had begun discussions with unions representing plant workers.
Tata Steel blamed customer defaults for the situation. "This development has become unavoidable because of a failure by four international slab buyers to fulfill their obligations under an offtake framework agreement," the Mumbai-based company said in a statement to the Bombay Stock Exchange.
The four are Italy's Marcegaglia SpA; South Korea's Dongkuk Steel Mill Co. Ltd.; Alvory SA, which is a subsidiary of Argentina's Ternium SA; and Duferco Participations Holding Ltd, a unit of the Duferco Group.
Under a 10-year so-called offtake pact, they agreed to buy just under 78% of Teesside's slab products at cost, and pay a portion of the plant's capital expenditure requirements, among other things. The contract started in 2004, Kirby Adams, Corus's new chief executive, said.
Dongkuk Steel had no comment on the situation. Marcegaglia's CEO wasn't immediately available to comment. The other companies hadn't been contacted yet.
By terminating the contract, the four made Teesside "unviable," Tata alleged.
In January, Marcegaglia and Dongkuk Steel were in talks to buy 80% of Teesside Cast Products, a person familiar with the matter said at the time. The plant was valued at $600 million, based on Marcegaglia's plan to pay $336 million for 56%.
Mr. Adams said he was taken aback that the consortium canceled the long-term purchase agreement but hasn't yet terminated a memorandum of understanding -- which expires at the end of June -- to buy the stake in Teesside.
"We haven't yet been ... advised whether the MOU has been officially finished," Mr. Adams said. It "seems completely contradictory that they would end the contract...that underpins the viability of the plant," he added.
"This is appalling news," said Michael J. Leahy, general secretary of Community, one of three labor unions representing Corus workers in the U.K. "We cannot believe that the consortium is taking such irresponsible action that will have a devastating effect on our members and the whole community in Teesside."
Community said it supports any Corus efforts to force the consortium to honor its contract, and has hired its own lawyers to investigate what can be done.
At GMB Union, Keith Hazelwood, national secretary, said it would try to meet with Corus as soon as possible and blamed the consortium for forcing a shutdown.
Mr. Adams said notice of the consortium's decision to cancel its long-term contract came by mail within the past couple of weeks. He said he has spoken with consortium members since then, but to no avail. "They are interested in a divorce and that's it," Mr. Adams said, adding, "There is no valid reason for termination of a 10-year contract, not even [when you're] halfway through. You will have to ask them ... why they are" canceling.
U.K. Business Secretary Peter Mandelson pledged the government's "full support" to Corus, saying the plant's closure could affect a further 1,000 regional jobs beyond those at the plant. He called Corus's chief executive late Thursday to express his "very strong feelings" about the matter.
"If there are other companies that have unilaterally withdrawn from contracts for which there is no proper legal basis, then Corus must challenge that, and challenge it up hill and down dale in order to preserve this production, these contracts and this work, and the government will give it full support in every way we can in doing so," Mr. Mandelson told Sky News.
"We can't see these jobs on Teesside going in this way and on this scale, just as a result of certain companies pulling out unilaterally from contracts that they should uphold, without that really being fought against by Corus," he said.
BBI Price at posting:
9.1¢ Sentiment: LT Buy Disclosure: Held
