‘We need to accept the cost’: future of British Steel unclear as bills for government build up | Steel industry

B.ritish Steel was losing £700,000 a day last year when its Chinese owner announced plans to close its steelworks in Scunthorpe. After Jingye refused support to purchase raw materials, the UK government stepped in with emergency legislation to take control of the plant.

But this was not the end of the crisis. Supporting British Steel now costs the government more than £1.2 million a day. However, the latest bill of 359 million pounds announced Its introduction to parliament last month may be just the beginning.

Nearly a year later, it remains unclear what will happen to the blast furnaces and rolling mills at the North Lincolnshire site and the 4,000 workers who turn iron ore into long steels needed for buildings, bridges and railways. Meanwhile, the government is covering more losses every day.

“It will cost money in the short term, so the £350 million figure will get bigger,” said Jon Carruthers-Green, steel market analyst and price forecaster at MEPS International. “If you want to keep the blast furnaces, if you want to keep the rail supply, there will be a cost.”

The UK steel industry is in a bind. In 1970, the country produced 28 million tons of steel. This drops to 4 million tonnes in 2024 and just 2.5 million tonnes last year; this was the lowest production since Queen Victoria’s reign.

Much of this decline was due to the temporary closure of Tata Steel’s Port Talbot steelworks due to a switch from polluting blast furnaces to cleaner and more efficient electric arc furnaces (EAF). The government’s official receiver also retains control of the arc furnaces in South Yorkshire after Specialty Steel UK (SSUK) went into administration last year and is trying to find a way forward for British Steel.

“They knew this was a difficult task to undertake,” said a person close to the government. “There are no easy answers here.”

jingye barrier

The first hurdle is Jingye, which bought British Steel out of proxy in 2020. The Chinese company remains the legal owner, although it does not have actual control.

Jingye is thought to be seeking compensation of up to £1bn in exchange for giving up ownership; Most observers consider it unlikely that this amount would be received for a loss-making facility.

British Steel, under Jingye ownership, has already received significant financial support from the government, including a previously unreported grant of £120 million in December 2022. Government documents say the award “was made to prevent a major economic shock in the Scunthorpe area, protect jobs and secure major investment for the UK”.

Jingye did not respond to a request for comment.

However, the authorities are also cautious about expropriating this place. A government review of the proposed takeover of British Steel last month acknowledged that “a more interventionist approach by the government could raise concerns among certain investors”. The statement added: “If the intervention is perceived as market distortion, there is a possibility that foreign investors will be deterred or diplomatic criticism may arise.”

There have been little signs of progress since Keir Starmer’s visit to Beijing last week. Even if Jingye could be purchased, there are several steps required for the government’s ultimate aim: to find another owner to continue production at Scunthorpe.

The fate of SSUK, formerly part of Sanjeev Gupta’s troubled Liberty Steel empire, may be intertwined. It is understood that officials have stated that they prefer a single buyer for both British Steel and SSUK.

One of the attractions of this setup could be that SSUK could supply steel to Scunthorpe rolling mills – potentially after investing in new casting equipment suitable for long products. Meanwhile, the blast furnaces will be closed and EAFs will be built in the same area. Industry experts said the switch to electricity would help British Steel as construction projects increasingly look for beams with lower carbon emissions.

A few hundred jobs will continue at British Steel’s rolling mills during the transition, but unions oppose “fixing SSUK by building it in Scunthorpe”, as one official put it. Job losses in Scunthorpe under the Labor government could be a damaging symbol in an area where Nigel Farage’s Reform won the mayoralty of Greater Lincolnshire last year.

Alasdair McDiarmid, deputy general secretary of steelworkers’ union Community, said: “It is crucial that we maintain steel production in Scunthorpe.” “Almost a year later, we need a resolution to the ownership issue and clarity on the long-term future of the business. Our members on the ground have tolerated more uncertainty than necessary and want to see a compelling strategy for the business in place.”

In the long run, the number of workers will inevitably decline. Building an electric arc furnace and connecting it to the electrical grid can take years, and arc furnaces do not need that many workers; unions can therefore force the government to invest in jobs in other parts of the business.

British Steel declined to comment.

No more ‘virgin’ steel

Many industry executives said the government may have to backtrack on one of the promises it made when it took over Scunthorpe: to maintain the capacity to produce “virgin” steel from iron ore. Blast furnaces use coal to convert iron ore into iron for steelmaking, but arc furnaces rely on scrap steel or ready-made iron (which requires billions of extra pounds to produce in the UK).

The government still seems committed to the idea that it must maintain its ability to produce iron. The impact assessment makes this clear: “In a time of trade wars or conflicts, relying on foreign (potentially hostile) suppliers is a strategic responsibility.”

“If we have to import everything, we could be held to ransom,” said David Murray, a senior metals executive. British Steel “needs protection and we need to accept the cost of that,” he said.

Cameron Pleydell-Pearce, professor of materials science and engineering at Swansea University, said a move towards EAFs could make British manufacturing more resilient in some respects because the UK had plenty of scrap metal.

But he advocated for a “more technology-neutral look at solutions” for Scunthorpe, including considering newer techniques to reduce iron ore, saying there was “no clear yes or no position” on where technology would leave the UK in the strongest position.

A government spokesman said: “This government is committed to supporting British steelmaking and our steel communities now and for future generations, and last year we saved British Steel from collapse by protecting thousands of jobs.

“We are continuing our discussions with Jingye to find a pragmatic and realistic solution for the long-term future of the site and will publish a steel strategy this year setting out how we can achieve a sustainable future for the sector.”

Whichever option is chosen, no one involved expects a quick fix to the Jingye problem, let alone a long-term owner. The expressed interest from a possible buyer, US-based retail investor Michael Flacks, who is said to be able to combine Scunthorpe’s operations with another site in Italy, has surprised the government, given its lack of steel experience. Various industry sources said it was unclear what benefits a combination would offer.

But privately, officials insist there is significant, albeit early, interest from others.

“A global steel producer [buy it]but they would like to take on the finished paper,” Murray said, with major government support. “They can’t take on that work in its current form.”

This means the government may retain control of British Steel for some time to come. A person familiar with the situation said it could take four or five years for the case to be out of government hands.