By John W. Miller And Alex MacDonald 

LONDON-- Tata Steel Ltd. on Tuesday blamed imports for its decision to cut 1,200 jobs in the U.K., echoing a sentiment that has become the cry of steelmakers around the world.

Shipments from Asia "threaten the future of the entire European steel industry," said Karl Koehler, chief executive of Tata Steel's operations on the continent. The Indian company is Europe's second-largest steelmaker behind ArcelorMittal.

At the heart of steelmakers' woes is overproduction in China, which since 2000 has built up massive steelmaking capacity to supply its appetite for bridges, cars and apartment blocks, and to offer stable employment in far-flung regions. The country now produces more steel than any other nation ever has, and its economic growth is slowing.

Chinese steel demand is expected to drop to 685.9 million tons this year from 714 million tons in 2014, according to forecasts published this month by the World Steel Association. Meanwhile, Chinese mills are on pace to produce 811 million tons of the metal this year.

The unsold Chinese steel is being shipped abroad, pushing prices down. In the first eight months of 2015, Chinese steel exports rose 30% to 64 million tons. That is more steel than any country, save for Japan, produced during that time.

The benchmark hot-rolled coil price in the U.S. is currently at $410 a ton, 33% lower than its level on Jan. 1.

Chinese steel officials have said they are moving to curtail high-cost capacity, but many dispute that their production is the problem. "Demand is the problem," said Zhang Maohan, a manager for Maanshan Iron & Steel Co., adding his company exports just a 10th of its 15 million tons annual production. "Once the economy recovers, there won't be any more oversupply problem," he said.

That isn't how U.S. and European steel executives see things. "Chinese overproduction is an explosive force which is hurting everything," said Wolfgang Eder, CEO of Austrian steelmaker Voestalpine AG.

Tata Steel, U.S. Steel Corp. and other steelmakers have called for increased trade protection. "Import tariffs can be effective," if they are 20% or 30%, said Robrecht Himpe, a senior executive for ArcelorMittal and president of the European Steel Association. "But it's getting urgent to act, because prices are becoming loss-making all over the world, and that's going to affect plants and employment."

The effects aren't constrained to Europe and the U.S. In India, steel imports surged by 50% between April and August, compared with the same period in 2014, with most of the extra steel coming from China.

Indian steelmakers successfully lobbied the government to raise steel import tariffs to 5%, but have warned that plants and jobs could be at risk if the import pace continues.

The Tata Steel layoffs announced Tuesday could signal another round of job cuts.

The steelmaker said it would shut its steel plate mills in Scunthorpe, England, and Dalzell and Clydebridge in Scotland, as well as one of two coke ovens at Scunthorpe. The move would result in about 900 job losses in Scunthorpe and 270 in Scotland, as well as a small number of posts at other sites which are part of Tata's long-products division in Europe.

Tata Steel employs 6,500 people at its long-products division, which produces rail, rod, plate and other steel products for construction and excavation companies. The division can produce more than 4 million metric tons of steel a year, but only produced 3 million tons last year. At Scunthorpe alone, the company employs about 3,500 people.

Tata Steel said imports of steel plate into Europe have doubled and imports from China have quadrupled over the past two years, causing steel prices to fall steeply. At the same time, a stronger sterling pound has undermined the competitiveness of its exports into Europe and encouraged more imports to the U.K.

Earlier this week, London-based Caparo Industries PLC initiated bankruptcy proceedings for 16 of its 20 steel-related businesses, a move which could potentially affect 1,700 jobs. This follows Thailand's Sahaviriya Steel Industries PLC's decision last month to shut its Redcar steel plant in England, resulting in another 1,700 job losses. The month before, Tata said it would partially shut its Llanwern steelworks in South Wales, resulting in 250 layoffs.

Tony Burke, assistant general secretary of the Unite labor union, called on the U.K. government to do more to protect the country's ailing steel industry.

"The U.K. government know[s] what needs to be done and they need to do it quickly. A failure to act and tackle the dumping of cheap Chinese steel will spell the end of steel in the U.K.," he said.

And what happened in the U.K., said Mr. Himpe of ArcelorMittal, "could be repeated around the world in the coming months."

Biman Mukherji contributed to this article.

Write to John W. Miller at john.miller@wsj.com and Alex MacDonald at alex.macdonald@wsj.com

 

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(END) Dow Jones Newswires

October 20, 2015 15:54 ET (19:54 GMT)

Copyright (c) 2015 Dow Jones & Company, Inc.
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