New UK Labour government to adopt tough stance against Tata Steel UK's job losses: Report

The newly elected Labour government in the UK is likely take a tough stance towards Tata Steel UK, ensuring the steelmaker protects local jobs at its Port Talbot plant before the government approves the 500 million pounds ($635 million) support package agreed upon by the previous administration for building a low-carbon facility, The Economic Times reported on Wednesday. 

"Decarbonisation does not mean deindustrialisation," new UK business secretary Jonathan Reynolds told ET in emailed responses.

What is the deal agreed between Tata Steel and the UK government?

In September last year, the then Conservative party-led UK government and Tata Steel UK- the country's largest steelworks- agreed upon a plan to replace the two blast furnaces at Port Talbot with an electric arc furnace (EAF) which is more energy efficient and environment friendly.

Under the plan, the UK government would pay 500 million GBP out of the 1.25 billion GBP required to build the EAF. 

According to the then UK government, the deal is "one of the biggest support packages in history" to secure the future of the Welsh steel industry by protecting around 8,000 jobs at risk across Tata Steel UK and many thousands more in the supply chain. 

However, the transition is still expected to cut down around 2,500 jobs in what has led to opposition from workers' unions who have protested against the company. 

Job losses inevitable: Tata Steel

Addressing the company's Annual General Meeting in Mumbai, India, on Tuesday, chairman N Chandrasekaran said the company was working with the UK government and unions to ensure an adequate level of investment for supporting skill development of workers who would be impacted due to the modernisation of the plant, implying that the job losses would be difficult to avert. 

He said the company recognised that the transformation was difficult from an execution perspective and also difficult for some of the employees "who will not have a future with Tata Steel, especially in the UK". 

Tata Steel owns a 3 million tonne per annum (MTPA) Port Talbot steel unit in South Wales and employs around 8,000 people across all its operations in the UK. 

Uncertainty around UK operations weighs on Tata Steel's stock

On Friday last week, Fitch Ratings had revised its outlook on Tata Steel from Stable to Negative.

In fact, Tata Steel has seen the most downgrades in a year over global economic uncertainty, operational aspects, and rising steel imports from China. 

"We believe the new Labour government may try to renegotiate the GFA (Grant Funding Agreement) and push for more labour-intensive (direct reduced iron) DRI-EAF configuration instead of mini-mill/standalone EAF as agreed now. DRI-EAF would be more labour intensive, but also generate higher Ebitda, Satyadeep Jain, analyst at Ambit Capital said in the ET report.