Sanjeev Gupta steels himself for Liberty House’s biggest ever challenge

Sanjeev Gupta looks unlikely to gain control of Tata Steel’s huge Port Talbot plant, but he is still in the running for some of its other assets and remains convinced that his plan to improve the fortunes of the industry is the right one.

Sanjeev Gupta, the chief executive of commodities group Liberty House at a Liberty Steel site. He says it is a misconception that the UK cannot be an industrial nation. Courtesy Liberty House

Sanjeev Gupta, the head of the Liberty House group of companies, is damning about the current state of the United Kingdom’s steel industry.

Mr Gupta, who is still bidding for some of Tata Steel's UK assets, even though the Indian conglomerate has backed down from plans to sell its entire UK operations, told The National at his company's office in Dubai that UK steel is at a crossroads.

“To put it bluntly, it has failed disastrously,” he said.

He said the UK consumes about 21 million tonnes of steel each year. Of this, 11 million is imported as steel products made elsewhere. Of the 10 million tonnes of raw steel used, 60 per cent is imported.

“We’re basically standing at the edge of a cliff at the moment. Since the 1970s, the UK has given up [on steel].”

There are a number of reasons as to why it might, not least the boom in capacity that has taken place in China in recent years, which has led to global steel prices plummeting. The price for steel billet stands at US$325 (Dh1,193) per tonne, which is a long way below the peak of $1,200 per tonne that it was trading at before the 2008 global financial crisis.

Mr Gupta, who started Liberty House as a commodities trading business while still a student at Cambridge University, disagrees with the notion that it is all China’s fault.

He also said that previous decisions taken by UK steel producers to focus only on higher-grade steel in a bid to move upmarket created a “vicious circle” that led to declining volumes and the loss of even more business as Chinese producers moved up the value chain. This has damaged not only the UK steel industry but its broader industrial base, said Mr Gupta.

“There is a misconception that we can’t be an industrial nation — or at least, we can’t do commodity, or average, products. We think we can do high-end stuff like robotics, and obviously we are very good at services. But we believe that in industry, hard industry, we no longer have a place,” he said.

He argued that the UK is still a big consumer of steel, though, and has the skills and research nous to create more products. “But there is a gap in the middle in terms of industry. There aren’t enough champions of mid-market industries.”

Mr Gupta is from a line of Indian businessmen. His grandfather owned a steel mill in Punjab and his father, Parduman, built the Simec Group of companies — so-called because it has interests in shipping, industry, mining, energy and commodities.

Mr Gupta has spent most of his life in the UK but moved to Dubai after the 2008 financial crisis and ran Liberty House’s commodities business from the region for about seven years. While it is still based at Jumeirah Lakes Towers, he moved back to the UK last year to look after a growing portfolio of businesses he has acquired there.

His proposal for UK steel is to replace the more energy-intensive blast furnaces with smaller, more efficient mills to recycle scrap steel. He says the UK produces 10 million tonnes of scrap steel each year but 75 per cent of that is exported, with much of it being reprocessed in Turkey.

“There’s a lot of research that’s been done that says that over the next 10 years, steel scrap supply will go from 10 million tonnes to 20 million tonnes,” he said.

He said that steel can be produced competitively by recycling scrap and reducing energy costs, using renewable energy where possible. Mr Gupta’s Liberty House bought the mothballed Mir Steel plant at Newport in South Wales in 2013 and then his father’s Simec business bought the neighbouring coal-fired Uskmouth Power Station a year later. Both were reopened last year, with the Uskmouth plant feeding the steel plant. Simec is in the process of converting the plant’s fuel source from coal to biomass.

Simec also has a stake in the offshore Tidal Lagoon project, which is being built to generate renewable tidal power at a man-made lagoon in Swansea Bay. Meanwhile, two mothballed plants that Liberty House recently acquired at Dalzell and Clydebridge in Scotland from Tata Steel UK will make turbine casings for Tidal Lagoon, as well as steel towers for wind turbines.

This interdependence between various company assets is important to understanding Mr Gupta’s desire to buyout Tata Steel’s UK assets.

On a pure cost basis, much of the steel produced in the UK might never be competitive with China but if used as part of a supply chain that produces higher-value products, it can be much more valuable. And if power costs can be reduced further through greater use of renewables, it could become competitive, Mr Gupta said.

“We look at our marginal cost and the contribution to overhead, rather than just the notional cost. The value of what we sell in our engineering business is worth 10 times per tonne the steel we produce. And it employs 10 times the people. The real value is in downstream.”

Most of the UK businesses it has bought in the UK in the past three years, including the Caparo Industries engineering company bought in November last year, have either been distressed assets or purchased directly from administrators, but Mr Gupta said they are all now trading profitably.

Liberty House was first out of the blocks when Tata Steel announced plans to sell off its UK assets in March.

According to UK newspaper reports, Tata had pumped £4 billion (Dh19bn) into its UK steel business but until recently it was still losing more than £1m per day and needed £700m to plug a deficit in the £15bn pension fund it inherited for former British Steel workers.

The company had initially been planning to sell off the business wholesale but on Friday last week it announced that it had instead begun talks about a potential joint venture for its European business “with strategic players in the steel industry, including thyssenkrupp”.

This effectively means a break-up of the UK business, with Tata’s giant plant at Port Talbot employing 4,000 workers and other assets being retained by the new joint venture, although Koushik Chatterjee, Tata Steel’s executive director for Europe, said that it was “too early to give any assurances” about the future of the business.

He said that a deal would depend on finding a suitable outcome for the pension deficit, successful talks with trade unions “and the delivery of policy initiatives and other support from the governments of the UK and Wales”. Tata Steel said that it would continue with a sale process for its speciality steels business in South Yorkshire and a pipe mill in Hartlepool.

Liberty House responded with a statement that described Tata’s decision as “sad and frustrating news for the UK steel industry, because the sector needs a fresh start and we fear this decision will simply deliver more uncertainty over a longer period”.

Taking on Tata Steel’s entire UK operations may have been a stretch given the amount of investment required.

The "GFG Alliance" of Mr Gupta's Liberty House and his father's Simec Group earned revenue of US$3.5bn last year, according to the Financial Times but its ebitda was just $40m, meaning its war chest was not huge. Mr Gupta said that Liberty House and Simec had strong credit ratings if they needed to borrow, as well as a combined net asset base of $1bn.

The company has also said that it will “continue discussions with Tata about the acquisition of a number of important assets that fit well with our strategy”.

“We have a great track record [in the UK] — we have seven large plants and more than a dozen downstream plants, which we have revived,” said Mr Gupta. “We have 1,500 employees in the country and a great relationship with the unions.”

He said that the group would carry on with its plans to develop scrap steel mills and related engineering businesses “with or without Tata”.

“If we have Tata, we can do it on a much bigger scale, much faster and in a much more compelling way. And we would have a much stronger voice. But even if we don’t, we will continue.”

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