Tata Steel will not sell a stake in its Teesside Cast Products (TCP) unit in northeast England to Italy's Marcegaglia and South Korea's Dongkuk Steel, J J Irani, director of Tata Sons, the holding company of Tata Steel, informed reporters at a steel conference in Mumbai on Wednesday.

"Operations are on just now at Teeside as before. There is no question of selling the plant to them now," Irani said.

In January, Corus, the European subsidiary of India's Tata Steel, Marcegaglia and Dongkuk signed a memorandum of understanding, with a view to Marcegaglia and Dongkuk jointly acquiring a majority stake of 80 per cent in TCP which was valued at an estimated $600 million, while Corus would retain a minority holding. The validity of the MOU expires in June.

Tata Steel, the world's sixth largest steel maker, said it is looking for the prospective buyers with a longer-term view on the Teesside unit.

Both Marcegaglia and Dongkuk Steel were part of the four-member consortium which executed a large contract with Corus, for the purchase of products from the Teesside plant, but failed to honour it under the changed market conditions.

The other two members of the consortium were Alvory SA, a subsidiary of Ternium SA – a steel producer with operations in North and South America – and Duferco Participations Holdings, a European steel trading and production company.

Earlier in May, Tata Steel's European arm Corus announced the possibility of an indefinite suspension of its Teesside operations as the consumer consortium cancelled the contract to buy the Teesside plant output. (See: Consortium deal pull out may hit 2,000 jobs at Corus)

The company said the situation had become unavoidable as the consortium failed to fulfil their obligations under an Offtake Framework Agreement (OFA) which was signed with Corus in 2004, with a commitment to buy around 78 per cent of the plant's production for ten years.

Tata Steel's setback in the London High Court
The London High Court order which came out yesterday was a setback for the Tata Steel. The order rejected the dictate filed by Corus against the buyer's consortium and directed the matter to arbitrators for settlement of the row.

Further to the termination of the OFA by the consortium, Corus had resorted to legal means to enforce the contract obligations by the consortium, as the future job prospects of around 2000 Teesside plant employees were also at stake.

In the OFA, the steel slab prices are fixed at around $500 a tonne, whereas the current market prices are 20-40 per cent lower depending on the specific product, and the buyers are afraid of incurring huge losses if they oblige the OFA with Corus.

Although Tata Steel could not get much help from the legal system in the UK, the government is in favour of an amicable settlement of the dispute between the two sides to avoid any possible layoff.

Officials are in dialogue with Tata Steel, unions and the consortium for finding a solution to the crisis.

The demand crunch for steel and slump in prices due to global economic downturn has severely affected the margins of Tata Steel, increasing its debt burden to over $11 billion.

Global demand for steel is expected to slump by 15 per cent in 2009, as estimated by the World Steel Association. However, Irani is optimistic that India will see a demand escalation of 5 to 8 per cent with the country's economy which is poised for a 6 per cent GDP growth in FY10.

Irani expected the steel prices of hot rolled coils (HRC) would stabilise in the range of $375-400 per tonne, which is currently in the range of $400-420.

Shares of Tata Steel jumped 12.8 per cent to close at Rs371.30 yesterday when the benchmark BSE Sensex dropped by 1.7 per cent.