Tata Steel Europe demands 30% price cut from European suppliers

Tata Steel has been accused of bullying tactics after demanding its suppliers in the UK slash their prices by 30 per cent as it attempts to pass on the cost of the steel crisis.

The Indian-owned company has written to businesses in its supply chain telling them it requires an immediate 10 per cent price reduction on all purchases, and plans to increase the cuts to 30 per cent.

''Should you – for any reason – be unable to support us in our efforts, we will need to fully consider other options,'' Tata's letter to its suppliers says.

The letter – which has been seen by The Telegraph of London – implies that any of its ''valued suppliers'' that fail to comply with the price cuts face being dropped.

Demands contained in the letter emerged just days after Tata's global parent company reported a £301 million interim profit.

The current crisis in Britain's steel industry - which saw Tata axe 1,200 in Scunthorpe and Scotland last month, on top of a further 1,000 earlier in the year – was blamed for the company writing down the value of its UK assets by £866 million.

In a letter signed by Lorraine Sawyer, procurement director of Tata Steel Long Products Europe, which makes up about a quarter of the company's operations in Europe, the company spells out the difficulties it is currently facing. These include global over-capacity and declining steel prices.

It adds that ''UK-based steel manufacturers have been particularly challenged by their higher cost position driven by high energy prices and business rates … worsened by sterling's appreciation'', and cites the closure of SSI's plant at Teesside and Caparo Industries' collapse as evidence of the depth of the crisis.

Tata's Long Steel unit faces ''a difficult business situation'', the letter says, adding that to ''ensure a long term sustainable business we have launched a transformation programme to improve our market performance and reduce our cost base''.

As a result, the business ''will focus on reducing external spend. We cannot achieve this transformation without the support of our valued suppliers.''

The letter adds, ''To this end we are seeking a long-term price reduction of 30 per cent … on all purchases. As a first step we would appreciate an immediate price reduction of 10 per cent.

''Supporting each other in these challenging times will enable us to further strengthen our relationship into the future. We look forward to having a long term partnership with you.''

The letter then hints that suppliers who do not comply may be dropped from the company's supply chain: ''We greatly appreciate your support but also want to stress that we require contribution from all of our suppliers.

One recipient of the letter was staffing business Kinetic. Neil Smith, managing director of the SME, called the tone ''bully boy tactics''.

He added, ''It feels threatening. The language is contradictory – they talk about valued suppliers then talk about getting rid of us if we don't take a 30 per cent price cut.

''We're well aware of Tata's troubles and a 10 per cent might be expected but 30 per cent is hard to swallow.''

Smith, who said he has worked with Tata for over a decade, added, ''This will cause panic at SMEs who depend on Tata's business.''

The Federation of Small Businesses has previously attacked heavy-handed actions by some large businesses, and said it was ''deeply concerned'' by the letter.

A spokesman added, ''While we recognise the challenges the steel industry faces, this will impact heavily on Tata's supply chain who may not be able to absorb the levels of discount being suggested.

''Small businesses rely on the integrity of their bigger customers when it comes to honouring agreed contracts [as] they often lack the clout, funds or time to seek adequate redress.''

A spokesman for Tata said, ''Our Long Products unit has been in dialogue with suppliers for a month. Initially some were spoken to directly, others were contacted by letter to begin a consultation process.

''We have had an excellent response with positive and innovative ways we can work together.

''The current position in UK steel is no secret and has been explained in all communications with all partners as we look for collective ways to find better solutions to solve the difficult and challenging trading conditions.''