Tata Steel spins unit after Klesch refuses to buy it

Tata Steel has spun out its long products unit making items such as plates, sections and wire rods into a standalone business to better pursue strategic options, after the Klesch Group walked away from talks to buy the division citing rising energy costs and Chinese imports as ruining the UK steel industry.

India-based Tata Steel, Europe's second-largest steelmaker, had said in October it was in talks to sell its loss-making long products operation, which employs 6,500 people mostly in Scunthorpe in the English midlands, to Klesch.

"The business started operating as a standalone, wholly owned subsidiary from Aug. 2," Tata said in a statement on Tuesday. "The standalone status for the long products business will also enable alternative strategic options to be assessed and progressed."

An independent report commissioned by workers' unions had claimed creating a standalone business would be the best option for Tata's LPE division. Long products are used in construction, railways, shipbuilding and engineering.

Tata said it noted media comments by the Swiss-based Klesch Group of its intention to withdraw from further negotiations about the potential sale of the long products business.

The talks with Klesch were "among a number of strategic options" Tata has been evaluating, it added.

The Klesch Group, a global commodities business involved in chemicals, metals and oil production and trading, was not immediately available for comment.

The head of the company, Gary Klesch, was quoted by the Financial Times as saying he was withdrawing from talks in "frustration at the (UK) government's apparent lack of interest in old-economy industries".

The new Scunthorpe-based business will be led by Bimlendra Jha, executive chairman of the Tata Steel board. The move brings together the existing long products businesses with its associated distribution facilities. "It will allow the business to combine the strength of Tata Steel with a flexible and more focused operational approach. It will also enable strategic options to be progressed," a Tata Steel spokesperson said.

Jha, who replaces Jon Bolton, will draw on his experience of running Tata Steel's India-based long products business and his successful business improvement experience at the company's Jamshedpur steelworks, the company said.

Tata Steel has been forced to slash costs and jobs since 2007 when it bought Anglo-Dutch producer Corus for $13 billion. In 2013 it booked a writedown of $1.6 billion, largely related to its European business.

Tata also said on Tuesday the UK steel industry faced challenges including rising volumes of imports, uncompetitive energy costs and a strengthening currency.

Tata is second in the European steel sector in terms of volume behind ArcelorMittal, also the world's biggest.