Tata warns of grim times for construction industry

(Reuters)

Tata Steel raised alarm over the prospects for the construction industry yesterday when it warned that demand from the sector was likely to remain below pre-recession levels for the next five years.

The grim prediction was accompanied by sweeping cuts at Tata's Scunthorpe plant, which will result in 1,200 jobs being lost there. The group also plans to cut another 300 jobs at its Teesside site.

The job cuts are down to losses at Tata's long products arm, which counts the construction industry as a key customer. "The decline in some major markets, particularly the construction sector, has been a key factor," Tata said.

"Demand for structural steel in the UK is only two-thirds of the 2007 level and is not expected to fully recover within the next five years," the company added.

The company also blamed the pressure posed by incoming carbon laws. "EU carbon legislation threatens to impose huge additional costs on the steel industry," the chief executive of Tata Steel's European operations, Karl-Ulrich Köhler, said. "Besides, there remains a great deal of uncertainty about the level of further unilateral carbon cost rises that the UK Government is planning."

Tata's warning comes on the heels of official data showing that construction output in the first three months of the year fell by 4 per cent in quarterly terms.

The Construction Products Association's economics director, Noble Francis, said the longer-term picture was clouded by the Government's austerity drive, which will affect work emanating from the public sector.

CPA forecasts suggest that public sector construction work – including schools, hospitals, public housing and repair and maintenance work – will decline by 26 per cent by 2013.

Although the private sector will help offset these declines in due course, the overall market will remain hamstrung until 2013. Even then, overall construction output is expected to remain broadly flat; no real growth is expected until a year later, in 2014.

Tata Steel's European operations – which include the former British Steel – account for two-thirds of its global capacity of about 30 million tonnes, while the booming Indian operations contribute a quarter.