How US Tariff Delayed Tata Steel's Break-even Plans for UK Unit

Tata Steel on July 30 reported a 7.3% year-on-year (YoY) improvement in operating profit for the first quarter of this financial year (Q1 FY26) as its European businesses turned profitable. However, the company's plan to break even the UK operation, which accounted for about 13% of FY25 revenue, seems to have been delayed by US tariffs and will now take at least six months longer.

Company officials in earnings calls after the results stated that the tariffs announced by US President Donald Trump have led to shrinking demand and cuts in automotive production, one of the key consumers of steel products.

For the quarter ending June 30, Tata Steel reported EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), also described as operating profit, of ₹74,560 crore ($8.95 billion). This was 7.3% more than the ₹69,500 crore EBITDA the company reported in Q1 FY25.

Of this, European operations (which include major operations in the UK and Netherlands) reported profitability of $17 million in Q1, up from a loss of $86 million in the previous quarter. The Netherlands operations reported a profit of approximately $73.2 million, up from $14.4 million in the last quarter. In the UK, the company posted a smaller loss of approximately $55.2 million, which was much better than the $104.4 million loss in the previous quarter.

According to reports, the company had planned to break even its UK operation in Q2, but that has now been pushed to Q4 FY26.

"As far as the break-even is concerned, if I take the market conditions average of last year, we would have certainly looked at maybe a second or third quarter target. But the market has been really tough... However, we still want to ensure that FY '26 exit in Q4 is at break-even. That’s actually the focus there," said Koushik Chatterjee, Chief Financial Officer of Tata Steel Limited during an analyst call on July 30.

Tata Steel UK Turnaround

In FY24, Tata Steel's UK operations reported a substantial increase in net losses of £1.12 billion (approx. $1.44 billion), primarily due to the closure of two blast furnaces at the Port Talbot plant. This decision, part of a shift towards more sustainable steel production methods, resulted in the loss of approximately 2,800 jobs. The company also faced impairment charges totaling £625 million (approx. $800 million), contributing to a 16% decline in revenues to £2.6 billion (approx. $3.33 billion). At the time, EBITDA came in at £41.53 million (approx. $53.16 million), but a year later in FY25, it rose to £45.26 million (approx. $57.93 million).

In response, Tata Steel initiated a comprehensive restructuring plan across its global operations. In the UK, Tata Steel proposed a £1.25 billion (approx. $1.6 billion) decarbonization plan, including the closure of legacy blast furnaces and the establishment of a 3 million-tonne electric arc furnace (EAF), supported by a £500 million (approx. $640 million) government grant. The company also targeted fixed cost savings of £230 million (approx. $294.4 million), aiming to reduce costs from £762 million to £540 million by FY26.

While these plans were on track, the global economy was hit by President Trump's tariffs. On June 3, 2025, President Trump issued a proclamation that doubled the United States' Section 232 tariffs on imports of steel, aluminum, and derivative products from 25% to 50%. Although the United Kingdom was granted a temporary exemption from the increased tariff rates to allow for ongoing trade negotiations, the increased tariffs still caused significant disruptions.

Earlier, a deal between President Trump and UK PM Keir Starmer reduced tariffs on UK-made cars from 25% to 10% for up to 100,000 vehicles annually in May.

How Tata Steel Was Impacted

"As far as the UK is concerned, there are two or three issues. What we are facing currently is the tariffs that have been announced by President Trump on the UK, not only for us but for our customers. And so, as that settles, there’s been some disruption... some reduction in production forecasts from automotive manufacturers in the UK, etc.," said TV Narendran, Tata Steel CEO, during a call with analysts last week.

He added that there is ongoing discussion between the UK and the US on the melt and pour issue. The US is insisting on melt and pour in the UK, but Tata Steel plans to continue sourcing steel slabs from its Netherlands and India plants until 2027. "And so, that's again part of the US-UK discussion," the Tata Steel CEO noted.

He also explained that some outdated quotas were set when demand was much higher, which have not been adjusted to match the current market, leading to excess imports into the UK and price discrepancies compared to countries like Germany. Tata Steel has raised this matter with the UK government, which has already announced changes to the quota system, set to take effect in the coming months, to address these imbalances.

CEO Narendran also said that going forward, Tata Steel's shift to using Electric Arc Furnace (EAF) in the UK will significantly reduce costs, primarily by using locally available scrap, which is cheaper than importing materials like iron ore and coal. This change is expected to lower costs by at least £150 per tonne. Additionally, the UK government’s recent energy cost concessions will further benefit the business.

Once the EAF is fully operational, he said maintenance costs will also drop, as the new system is more efficient compared to the outdated blast furnace and coke ovens. The company believes this transition will make the UK operations EBITDA positive. Moreover, the Carbon Border Adjustment Mechanism (CBAM) will support the UK by reducing carbon-related costs, as the carbon footprint of Port Talbot has already been reduced from 6 million to 1 million tonnes, improving competitiveness in the domestic market, he noted.

"EBITDA improvement in European operations is expected to continue steadily in the coming quarters on account of its cost-restructuring measures. The capacity ramp-up in the Netherlands and lower fixed costs should also support the overall EBITDA performance going forward," said Motilal Oswal Financial Services on July 31.