The move will give Tata Steel a reach in the European markets for its high-end products as Usinor can sources high grade value added steel from Tata Steel for its markets in Europe.The talks are said to be in the finalisation stage, industry sources said.

Usinor is expected to benefit from this tie-up by leveraging on Tata Steel's network in the South-East Asian markets including India. Tata Steel officials were not available for comment.This is seen as Tata Steel's efforts to become an overseas player in steel.

The company has already started to make its presence felt in the overseas market by announcing plans to set up a $50 million green field ferrochrome plant in Gladstone at Queensland in Australia.

The deal, however, could now give Tata Steel more than what it was looking for as, Usinor of France, Arbed SA of Luxembourg and Acerlia of Spain have combined together to form the world's largest steel company.

The $3.11 billion merger of the three companies might now work to Tata Steel's advantage, if the newly merged company honours all agreements entered into by the earlier entities.

Tata Steel's cold rolled (CR) mill has an annual capacity of 1.2 million tonnes. The work on the second phase of the galvanising mill is expected to be on schedule. Tata Steel's foray into the high-end CR products segment for usage in auto and white goods sector has probably sent it looking for a partner in Europe which has a market with a good growth rate in these sectors, industry observers said.

Tata Steel, in an effort to shield itself from the vagaries of the steel market, has fine tuned its product mix by substituting its low value products with high value items. The marketing tie-up with Usinor will help Tata steel sell its high-end products at a premium.

Hot rolled coil, which until the current fiscal, formed 52 per cent of its product mix will come down to 28 per cent in the 2000-01 fiscal.

The contribution from CR products - which forms only 12 per cent of the current fiscal's product mix - will increase to 34 per cent in the next fiscal, thus forming the largest chunk in the company's product mix.

Tata Steel will substitute low value products with value added items, as the difference in realisations per tonne of hot rolled products and cold rolled coil is over $100 per tonne, giving the company an earning of over Rs 5,000 on an average on per tonne of steel sold.

Longs, which is 28 per cent of the company's current product mix, will increase to 30 per cent in the next fiscal. However, production of semies will remain unchanged at 8 per cent.