Tata Steel's UK-based European subsidiary, Corus,  says it would cut 2,000 jobs and close down production at its Teesside facilities after the plant's main customer refused to honour a purchasing agreement.

The Corus company, Teesside Cast Products had a 10-year contract to supply slab steel to a consortium of four buyers. However, the consortium has backed out of the deal, and Corus warned that substantial redundancies ahead.

The company has initiated legal proceedings against the consortium comprising Marcegaglia, Dongkuk Steel Mills, Duferco Participations Holding and Alvory in a bid to force them to honour their commitment. The four companies lift around 78 per cent of Teesside's 3.5 million tonnes of the steel it produces every year.

The company has warned today that if the bid failed it would have to mothball the Tesside facility which would lead to very significant number of redundancies.

The Teesside facility produces high quality slab steel for further processing by its customers. Falling demand due to the economic slowdown has already forced Corus to slash 3,500 jobs, including 2,500 in the UK as the company has reduced production. The company formed from what was originally British Steel has a workforce of 22,000 in the UK and is Europe's second largest steel producer.

Chief executive, Kirby Adams said the was extremely disappointed with the irresponsible action of the consortium members who have terminated a legally binding ten-year contract that would bring to an end a fine heritage o steelmaking at Tesside. He added that the company regretted the distress the action would cause to the company's dedicated employees who have worked steadfastly in the interests of the consortium.

According to reports, business secretary Peter Mandelson spoke to Adams about the potential closure of the plant and the collapse of the agreement with the overseas consortium.

He said it was essential for Corus to do everything legally, and with the government's assistance to reinstate the agreement. He added that it was unacceptable that a development of the kind be allowed to threaten jobs on such as scale as to have a protentially devastating impact on the area.

He said the government stood ready to whatever necessary to support the company and was not prepared to reconcile itself to the inevitable closure of the plant.

Terry Pye, national officer for the Unite trade union, said the failure of the consortium to live up to its obligations was potentially disastrous news for the workers at Corus' Teesside plant. He added that the unions would be meeting Corus early next week where they would urge the company to do everything possible to protect the jobs of the workers at the Teesside plant.

He said that the union's members had worked extremely hard for the consortium and they would be outraged by its decision to pull out of this legally binding agreement that would jeopardise the livelihood of many workers.