Tata Steel Expects Higher Profit at European Unit

NEW DELHI – Tata Steel Ltd. expects operating profit at its European unit to rise by two-thirds of its current level to $100 a metric ton over the next three years as it focuses on more value-added products and controlling costs, its managing director said.

Tata Steel Europe generates earnings of $60 per ton before interest, tax, depreciation and amortization at present and the expectation is based on "assumptions about the prices and availability of raw materials and market conditions in Europe," Hemant Nerurkar told a press conference late Tuesday.

Mr. Nerurkar said the unit, formerly called Corus, would produce around 15 million to 16 million tons of crude steel in the financial year which began on April 1, up from 14.8 million tons last year.

Tata Steel Europe turned around its performance during the last few quarters by cutting costs. It sold its Teesside plant in the U.K. and reduced staff at some other facilities. The company is banking on a gradual recovery in demand for steel in northern Europe and the U.K. to drive its production and revenue higher over the next few years.

Mr. Nerurkar said he doesn't expect any reduction in steel prices in India over the next three months due to high raw material prices.

Tata Steel, which has its own iron-ore mines in India, imports a large part of the coking coal it requires.

Mr. Nerurkar said the company will import coking coal at around $280-$290 a ton for the July-September quarter, unchanged from the current quarter. "We had expected coking coal prices to come down for the second quarter [of the fiscal year], but that didn't happen."

Mr. Nerurkar added that India's steel demand is expected to keep growing by 10.4%-10.5% a year, mainly due to consumption by the construction industry as both the private sector and the government makes large investments in infrastructure development.

But there could be some slow down in steel demand from automobile and consumer-durables companies as higher interest rates in India have made loans for buying cars and appliances more expensive, he added.

Write to Prasenjit Bhattacharya at prasenjit.bhattacharya@dowjones.com