Tata Steel is in talks to sell its struggling British-based unit to investment firm Greybull Capital, according to statements from the two firms.
The country's largest steelmaker has been trying to sell its long products unit, which makes steel for use in construction, since last year. Its plans became more urgent as a global steel crisis intensified and prices hit decade lows.
"This is an extremely critical time for the whole industry, and we have been working hard to explore all options that could provide a future for the Long Products Europe business," said Karl Koehler, chief executive of Tata Steel's European operations.
Greybull had emerged as the favourite in the sale process. One source said the deal was probably worth less than £500 million, and that the buyer was not likely to take on any debt. "Greybull Capital confirms that it has signed a letter of intent with Tata Steel… While this is an important milestone, much work remains to be done to reach a successful outcome," the investment firm said.
Klesch Group, a global commodities producer and trader, withdrew from talks to buy the UK-based unit in August. An industry source told Reuters at the time that Klesch was not planning to invest capital or take on debt.
In October Tata Steel said it could axe about 1,200 jobs at its long products unit, which is based in Scunthorpe, northeast England and employs some 4,700 people across Europe.
The news came as a huge blow to Britain's embattled steel sector. Including the Tata cuts, the sector lost some 4,000 jobs in October alone, equivalent to about a fifth of its workforce. In July, Tata announced plans to cut up to 720 jobs, mostly in Rotherham, northern England. Unite, Britain's biggest union, welcomed the pre-Christmas announcement, but said it has some concerns.
"We will need to consider whether jobs are safe with this potential sale. Ministers also need to realise that ... the industry is still in crisis," it said.
British steelmakers pay some of the highest energy costs and green taxes in the world and are also struggling to compete with record Chinese steel imports, which they say have been unfairly subsidised by the government.
On Monday, a UK parliamentary committee found that government action to help Britain's steel sector was still not enough to secure the industry's future.
Tata Steel has been forced to slash costs and cut thousands of jobs since 2007 when it bought Anglo-Dutch producer Corus for £8.7 billion, making its Europe's second largest steelmaker. The company employs about 30,000 people across Europe, including about 17,000 in Britain.