Crisis-hit Tata Steel asks suppliers to slash prices

London: Amid a crisis in Britain's steel sector, Tata Steel has warned its suppliers that if they do not slash prices by up to 30 per cent in the long term then they risk losing the steel giant's business.

The company's UK-based Long Products division, which supplies steel beams, railway tracks and other products, has written to its suppliers asking for an immediate 10 per cent price cut which must go up to 30 per cent in the long term.

In a letter signed by Lorraine Sawyer, procurement director of Tata Steel Long Products Europe, which makes up about a quarter of the company's operations in Europe, the company spells out the difficulties it is currently facing, including global over-capacity and declining steel prices.

The letter says: "UK-based steel manufacturers have been particularly challenged by their higher cost position driven by high energy prices and business rates...Worsened by sterling's appreciation.

"To ensure a long term sustainable business we have launched a transformation programme to improve our market performance and reduce our cost base. The business will focus on reducing external spend. We cannot achieve this transformation without the support of our valued suppliers.

?"To this end we are seeking a long-term price reduction of 30 per cent on all purchases. As a first step we would appreciate an immediate price reduction of 10 per cent.

"Supporting each other in these challenging times will enable us to further strengthen our relationship into the future. We look forward to having a long term partnership with you."

Last month Tata Steel announced nearly 1,200 job losses at its plants in Scunthorpe and Lanarkshire, as a part of a restructuring plan amid struggling operations.

Nine hundred jobs will be lost at the firm's plant in Scunthorpe and the remaining 270 jobs will go in Scotland.

The letter indicates that suppliers who do not comply may be dropped from the company's supply chain: "We greatly appreciate your support but also want to stress that we require contribution from all of our suppliers. Should you ? for any reason ? be unable to support us in our efforts, we will need to fully consider other options."

One recipient of the letter was staffing business Kinetic. Neil Smith, managing director of the SME, called the tone "bully boy tactics".

He told the Daily Telegraph: "It feels threatening. The language is contradictory ? they talk about valued suppliers then talk about getting rid of us if we do not take a 30 per cent price cut.

"We are well aware of Tata's troubles and a 10 per cent might be expected but 30 per cent is hard to swallow," he said. 

The Federation of Small Businesses has previously

attacked heavy-handed actions by some large businesses.

A spokesperson said: "While we recognise the challenges the steel industry faces, this will impact heavily on Tata's supply chain who may not be able to absorb the levels of discount being suggested.

"Small businesses rely on the integrity of their bigger customers when it comes to honouring agreed contracts (as) they often lack the clout, funds or time to seek adequate redress."

A spokesperson for Tata Steel said: "Our Long Products unit has been in dialogue with suppliers for a month. Initially some were spoken to directly, others were contacted by letter to begin a consultation process. We have had an excellent response with positive and innovative ways we can work together.

"The current position in UK steel is no secret and has been explained in all communications with all partners as we look for collective ways to find better solutions to solve the difficult and challenging trading conditions."

Caparo Industries, a part of Lord Swraj Paul's global business empire, is also cutting 452 jobs from its steel plants across the UK after going into partial administration earlier last month, having been hit by the crisis that has gripped UK's steel sector.