By Aman Shah and Maytaal Angel
MUMBAI/LONDON (Reuters) - India's Tata Steel Ltd is in talks to sell loss-making European operations including mills in northern England and Scotland to Geneva-based Klesch Group, as it battles weak prices and tentative economic recovery.
Tata, Europe's second-largest steel producer, said in a statement it had agreed to negotiate with Klesch over its Long Products division, which serves the construction and engineering industries and employs 6,500 people in Britain and Europe.
Tata - which came into the European steel market with the acquisition of Corus in 2007, just before the financial crisis - employs 30,500 people in Europe, including 17,500 in Britain.
Its exit from some of its largest operations in Britain would be another blow to the country's bruised industrial heartland, even as the UK government seeks to diversify the economy away from financial services.
Karl Koehler, chief executive of Tata Steel's European operations, said the group would now focus on strip products, a higher-margin category of steel which is used in cars, construction components, white goods and packaging.
"Tata Steel has a strategy of differentiating itself," Koehler said.
"This is best done by sharpening the focus on the biggest part of our European business, in order to build a sustainable, robust, viable business with improved products and first class manufacturing expertise, therefore achieving a better competitive base," he said.
Koehler declined to give a value for the potential sale or to disclose losses by the division. But he said the operations being put up for sale were "close" to breaking even.
Tata's long products division makes wire rods, plates and semi-finished steel for markets including construction, shipbuilding, rail and engineering.
Tata, one of the world's largest steel companies, has an annual crude steel capacity of 29 million tonnes a year. In total, Koehler said the European long products division, which was restructured in 2011 and again last year, produces around 3.2 million tonnes of steel a year.
OVER THE WORST?
U.S. entrepreneur Gary Klesch, chairman of The Klesch Group, said he saw a growing market for "the first class products made by this business and we intend to capitalise on this demand".
Klesch has a record of swooping in on ailing businesses and is credited with bringing distressed debt investing - or "vulture capitalism", as it is described by critics - across the Atlantic. His global commodities business has three units involved in chemicals, metals and oil production and trading.
If a final deal is struck, Klesch will acquire Tata's UK-based assets including Scunthorpe Steelworks, mills in Teesside, Dalzell and Clydenbridge in Scotland, as well as operations in France and Germany.
Tata Steel moved into Europe less than a decade ago, with its $13 billion acquisition of Britain's Corus, but has been forced to consistently slash costs and jobs.
Producing steel profitably in Britain has become increasingly difficult given shrinking demand, plus higher energy, labour and logistics costs compared even with mainland Europe - itself struggling to compete with Asia and the United States.
Koehler said on Wednesday that Europe's steel industry was "through the worst".
The World Steel Association earlier this month forecast steel demand growth of 4 percent for the European Union in 2014. Demand, however, remains well below its pre-financial crisis peak and EU steel prices are near recent 4-year-lows thanks to over-capacity and surging Chinese exports.
Unions criticised Tata's planned sale, a move they said threatened Tata's future in Europe.
"The fact that Tata Steel wants to abandon half of its European operations and pull out of an entire strategic market does not bode well for the future and ends Tata Steel's vision to be a global steel player," the National Trade Union Steel Co-ordinating Committee said in a statement.
The committee said Tata Steel Chairman Cyrus Mistry had agreed to meet workers.
Tata undertook a major restructuring of its long products unit in 2011, with the loss at the time of about 1,500 jobs in Britain. Last year, it announced plans to cut another 500 jobs at the division.
(Additional reporting by Clara Ferreira Marques in LONDON; Editing by Anupama Dwivedi and Keiron Henderson)