U.K. steel producer Thamesteel Ltd., which is owned by Saudi-based Al-Tuwairqi Group, has entered into administration after failing to secure an investor to rescue it from financial difficulties, members of the Community Union said Wednesday.

This marks the second steelmaker to make an announcement Wednesday that could result in job losses. Tata Steel Ltd. (500470.BY), Europe's second-largest steelmaker, also announced plans to overhaul its European tube steel business amid weak demand for its products. It said the move could result in 200 job losses.

Thamesteel, based in Sheerness, southeast England, employs about 400 workers, according to Factiva, and has a production capacity of 840,000 metric tons of billet and 600,000 tons of bar rod.

Michael Leahy, general secretary of Community, said that Thamesteel had informed the union's local representatives that the accountancy firm Mazars has been appointed as administrators for Thamesteel after a deal with a Swiss group to secure the plant's future fell apart at the last minute.

Thamesteel representatives weren't immediately available to comment on the administration proceedings.

"This is devastating news for everybody who works at Thamesteel and for the wider community in Sheerness," said Leahy. "Community believes that Sheerness steelmaking can have a future and we will be doing all we can to save our steel in the coming weeks and months," he added.

A union spokesman said that there were reports that Thamesteel had been in talks with Trafigura to secure a deal that would have resolved Thamesteel's financial difficulties.

A spokesman for Trafigura said he declined to comment on speculation.

The European steel industry is struggling to cope with protracted weak demand in certain corners of the steel market, particularly in the construction sector. The European sovereign debt crisis has made the situation worse by denting consumer confidence as fears grow that Europe is set to lackluster economic growth prospects this year.

The International Monetary Fund warned this week that Europe was likely to experience at least a mild recession this year while official U.K. data Wednesday showed that the U.K. economy shrank in the fourth quarter of 2011, leaving Britain on the brink of recession.

European steelmakers have been restructuring their operations in light of weaker steel demand. Aside from Tata Steel and Thamesteel, ArcelorMittal (MT), Europe's largest steelmaker, began idling furnaces this past fall as part of an optimization plan aimed at shifting more of its production to low-cost facilities while idling more costly facilities. This week ArcelorMittal announced further plans to indefinitely shut an electric arc furnace in Madrid due to weak demand. The move will affect around 270 jobs. ArcelorMittal is also considering cutting 630 jobs at its Czech plant in order to boost competitiveness.

Leahy said "we are seriously concerned about what the [U.K.]government is doing about manufacturing generally" and the steel industry in particular. He noted that there has been a lot of noise from government to help the manufacturing industry but little actual help.

-By Alex MacDonald, Dow Jones Newswires; +44 (0)20 7842 9328; alex.macdonald@dowjones.com

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