Only merger can save Tata Steel
Tata steel which is suffering losses quarter after quarter is now hoping for a merger with German conglomerate ThyssenKrupp. They have been in talks from last year.
ThyssenKrupp which wants to reduce the competitiveness in Europe. The steel sector is in a severe crisis in this particular region due to low-cost import from china. China which uses to produce of total world steel production 10 years ago, now it has been accountable for of the world steel production which is a serious threat to steel producer of other regions. Although post BREXIT fall in pound had made steel export cheaper by 15% and importing from china became more expensive.
There seems no alternative to counter the imported steel from china except the merger between Tata steel and ThyssenKrupp. But there are a couple of hurdles, first one is the BREXIT, its look dicey merger happening between two conglomerates before the negotiation takes place between Europe and Britain. Also, another threat to this merger is 15 Billion Pound (18.4 billion $) obligation to UK pension scheme which ThyssenKrupp is not ready to take on. Although Tata steel UK offered to British union a deal saying that they will keep up the production at country’s largest steel plant Port Talbot in Wales for at least 5 years. It also offers 1 Billion Pound investment in U.K. business for next 10 years. However, rescue plan for Tata steel can fall apart if the worker union rejects their proposal. Although British financier Edi Truell came with a new offer for Tata steel UK pension scheme but pension fund trustee rejected his offer.
Also on technical basis, Tata steel surged approximately 20 % from its key support level i.e. 380 INR, but now its challenging weekly resistance levels around 470 INR range. It will be interesting to watch out now but in case a breakout happens, it will require some solid bullish sentiment to chase down the highs of June, 2014 which is around 576 INR. If things don’t pan out this way it can fall hard to its support levels of 405-410 range and it can also break those levels because of overall disappointment.