Tata Steel Ltd. (TATA), Europe’s second- biggest producer of the alloy, will get 10 percent of its coking coal needs from a Rio Tinto Group mine that it partly owns as the company seeks to lower raw-material costs.

The European unit will start receiving the ingredient in October from Rio Tinto’s Benga project in Mozambique, where Tata Steel owns a 35 percent stake, Managing Director H.M. Nerurkar said in an interview yesterday. The first year’s shipments are expected to total about 700,000 metric tons against an annual requirement of 6 to 8 million tons, he said.

Tata Steel swung to an unexpected loss in its third quarter as raw material costs increased amid falling demand and prices in Europe. Global use of the alloy will rise 4.5 percent in 2012, the slowest in three years, according to the median estimate of 14 steelmakers, analysts and traders surveyed by Bloomberg.

“Benga coal will be a positive trigger for the European unit and we will definitely see improvement in operational margins after supplies start,” said Jatin Damania, an analyst at SBI Capital Markets Ltd. in Mumbai, who has a “buy” rating on the Tata Steel stock. “The company’s effort to seek raw material integration will bear fruit gradually.”

The Benga project will start production in the first half of this year, Tom Albanese, chief executive officer at Rio Tinto Plc (RIO), said on an earnings call on Feb. 9. Tata Steel is entitled to get 40 percent of the output.

Quarterly Loss
“In the first three months, we may export about 100,000 tons” from the Mozambique mine, Nerurkar said in his office in the east Indian city of Jamshedpur, the site of its only India factory. “All the coal to us will be shipped to Europe.”

Tata Steel gained as much as 1.3 percent to 430.45 rupees in Mumbai trading and was at 429.25 rupees as of 11:03 a.m. The benchmark Sensitive Index rose 0.2 percent.

Tata Steel’s loss, including the European unit that contributes about two-thirds of its output, was 6.03 billion rupees ($119 million) in the three months ended Dec. 31, compared with a profit of 10 billion rupees a year earlier, the Mumbai-based company said on Feb. 9.

The unit buys all its steelmaking ingredients, including iron ore and coking coal, from outside and was saddled with high costs after raw material prices rose as steel demand surged in 2010 following the worst recession since World War II.

Tata Steel’s top priorities include cutting raw material costs by securing its own supplies, Karl-Ulrich Kohler, chief executive at the European unit, said Feb. 9.