Tata Steel Q3 Earnings Preview: UK Turnaround, Europe Carbon Tax, Raw Material Strategy Under Spotlight
As Tata Steel prepares to announce its October-December quarter earnings on Friday, 6 February, the market's attention is sharply focused on three critical areas: the long-awaited turnaround of its UK business, the implications of Europe's new carbon tax, and the company's strategic plans to secure raw materials domestically. These factors are set to dominate the earnings discussion, reflecting broader challenges and opportunities in the global steel industry.
The Lingering UK Turnaround Challenge
The question of when Tata Steel's UK operations will finally achieve EBITDA breakeven continues to loom large over the company's quarterly interactions with analysts. Initially projected for Q2 of FY26, this milestone has now been pushed to the end of FY26, with management citing global trade disruptions and spillover effects from US tariff wars as key reasons for the delay.
Investor concerns were amplified in November when Chief Financial Officer Koushik Chatterjee issued a stark warning. He emphasized that without tougher import restrictions from the UK government to protect domestic producers from cheap imports, particularly from China, achieving breakeven by the fourth quarter of FY26 would be "difficult." Chatterjee hinted that without such policy support, the company might be forced to consider further restructuring of its UK business—an option it is keen to avoid.
The UK operations, centered around the Port Talbot plant, along with the IJmuiden plant in the Netherlands, form the core of Tata Steel's European footprint. Consequently, recent earnings calls have increasingly resembled seminars on the future of these European assets rather than routine financial updates.
Europe's Carbon Tax: A Potential Earnings Booster
In contrast to the UK struggles, the implementation of the Carbon Border Adjustment Mechanism (CBAM), often referred to as a carbon tax, in Europe could provide a tailwind for Tata Steel's Netherlands operations. Unlike many competitors, Tata Steel is positioned to benefit from this levy, as it is expected to drive up steel prices once fully enforced, potentially boosting earnings from its European segment.
However, with CBAM taking effect from 1 January, there remains limited clarity on the applicable rates. Analysts will be closely monitoring management's commentary on this mechanism during the earnings call, as any positive contribution from overseas operations could significantly swing the company's overall financial performance.
Domestic Raw Material Security: A Looming Deadline
Parallel to these operational challenges, Tata Steel's plan to secure raw materials domestically by the end of 2030 has captured significant analyst and investor interest. Currently, the company meets 100% of its iron ore requirements in India through six captive mines, acquired long before India mandated auctions with high bid premiums. These mines are set to expire post-2030, necessitating a renewal through an auction process where bid premiums often exceed 100%.
Managing Director T.V. Narendran highlighted the dilemma in November, stating that bidding must make economic sense to avoid scenarios where the cost of iron ore from captive mines surpasses market prices. The company is actively engaging with entities like Odisha Mining Corp. Ltd and NMDC, while also considering imports as a viable option.
A Kotak Institutional Equities report from December 2025 warns that the expiry of these captive mines could reverse iron ore security for private steel companies, potentially eroding 30-40% of Tata Steel's operating margins post-FY2030. In response, Tata Steel has initiated several measures:
- Signed a memorandum of understanding with Lloyds Metals & Energy to explore iron ore mining opportunities in Maharashtra.
- Acquired a 50.01% stake in Thriveni Pellets Pvt. Ltd, a manufacturer of iron ore pellets.
- Sourced a bulk shipment of iron ore lumps from Tata Steel Minerals Canada, marking the first time Indian operations have tapped this Canadian arm for raw materials.
While these steps aim to bolster raw material security, the Canadian import move, in particular, is likely to prompt investor questions regarding logistics costs, freight economics, and long-term viability.
Demand, Pricing, and Financial Expectations
The December quarter saw steel prices hit multi-year lows due to weak demand, oversupply, and uncertainty around safeguard duties. However, post-announcement of these duties, prices for hot-rolled coil and cold-rolled coil increased by 4% to ₹51,700 per tonne in mid-January 2026, following earlier hikes. Analysts will seek management insights on the potential for further price increases, especially with the resumption of construction activity.
Financially, Axis Securities anticipates consolidated revenue to rise 14% year-on-year and 4% sequentially to ₹60,887 crore, driven by higher sales volumes partially offset by lower HRC prices. EBITDA is expected to improve 46% compared to the same quarter last year, though it may decline 3% sequentially due to lower steel price realizations in India and the Netherlands. Higher coking coal prices and reduced steel realizations are likely to pressure EBITDA per tonne, with Kotak Institutional Securities projecting UK losses to widen to US$166 per ton from US$154 per ton in the previous quarter.
As Tata Steel unveils its Q3 results, stakeholders will be keenly awaiting updates on these fronts, which collectively underscore the complex interplay of global trade policies, environmental regulations, and strategic resource management shaping the company's future trajectory.
