Tata Steel sees pickup in European steel demand

By Aman Shah

MUMBAI (Reuters) - Tata Steel Ltd looked to reviving European demand and infrastructure investment by the Indian government to boost sales in coming quarters after posting higher sales but a drop in net profit for April-June on Wednesday.

Net sales rose 11 percent to 361.43 billion rupees in the quarter to end-June, helped by a surge in European demand. The figure was in line with expectations for 361.16 billion rupees, according to Thomson Reuters data.

Tata Steel's European business, the result of its $13 billion acquisition of Britain's Corus in 2007, contributed roughly 57 percent to its total steel production of over 27 million tonnes in the last fiscal year to end-March.

"Though demand remains well below levels we would regard as healthy, we can see greater stability emerging in the markets we serve," Karl-Ulrich Kohler, chief executive of Tata Steel Europe said, referring to the demand in the European region.

The management of Tata Steel, a unit of India's Tata conglomerate, has been cutting costs and focussing on high-margin products to boost sales in Europe to cope with softness in the region's economy.

ArcelorMittal SA, the world's largest steelmaker, also lifted its demand forecasts for Europe and for the United States this month, highlighting strong automotive and machinery sector demand.

Tata Steel's fiscal first-quarter profit fell by 70 percent to 3.37 billion rupees ($55.0 million), hurt by a 15.7 billion rupee impairment on its 35 percent stake in the Benga coal mines in Mozambique.

Analysts on average had expected Tata Steel to post a profit of 12.21 billion rupees, but the estimate did not account for the one-time impairment charge.

The steel firm had to take the hit after Rio Tinto, owner of the other 65 percent, agreed to sell it and other projects in Mozambique's Tete province, which it had bought via a $4 billion acquisition of Riversdale Mining in 2011, for just $50 million.

INDIA BUSINESS

Tata Steel, founded in 1907 and part of the Tata group that also owns British luxury carmaker Jaguar Land Rover, has long enjoyed strong margins in its Indian operations, because it mines most of the iron ore and coal it needs as raw material.

Its domestic business has been hurt, however, by a clampdown on iron ore mining and controversy surrounding allocation of coal blocks to private companies. Tata sources iron ore for its domestic operations from its captive mines.

The company said that while mining operations were suspended for a fortnight during the quarter following a Supreme Court order, there was minimal impact on deliveries of saleable steel from its mines.

Tata Steel hopes to benefit from a pledge by newly elected Prime Minister Narendra Modi-led government's pledge to revive economic growth and boost infrastructure investments in Asia's third-largest economy.

"The government's thrust on development of core industries like housing and infrastructure should boost steel demand," TV Narendran, managing director of Tata Steel India said in a statement.

Tata Steel, which has a market value of about $8.5 billion, ended down 1.4 percent at 534.50 rupees on Wednesday before the results were announced. The stock has more than doubled in the past year, helped by the revival of its European business.

(1 US$ = 61.2625 rupee)

(Editing by Sumeet Chatterjee and Jane Baird)