Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The Chinese owner of British Steel wanted close to £1bn from the government to keep its Scunthorpe plant open and move to greener methods of steel making, according to people familiar with the situation.
The size of the taxpayer support requested — half of the total project cost — underlines the scale of the challenge in keeping the company’s two existing blast furnaces open while building new, less carbon-intensive electric arc furnaces.
Jingye last week rejected a government offer of £500mn and launched a consultation that could see its two blast furnaces close as early as June, putting up to 2,700 jobs at risk. The business operates the last two furnaces in the UK after Indian-owned Tata Steel closed its final one in Port Talbot, south Wales, last September.
British Steel declined to comment on the size of its demand. The company, which has been in talks with ministers for nearly two years, was prepared to invest a similar-sized amount towards the project, several people confirmed.
Ministers, however, had hoped to replicate a deal struck with India’s Tata Steel last year under which the government is providing a £500mn subsidy to help the company switch to greener steelmaking. Tata is contributing £750mn towards the project. However, British Steel’s decarbonisation plan was considerably more expensive, said the people.
Allan Bell, British Steel’s chief commercial officer, told the business and trade select committee last week that the group had concluded the “only viable” option to decarbonise was to “move to 100 per cent electric arc furnace steelmaking”.
“This is a £2bn project we estimate so it is not a project that the private sector is going to be able to implement without government support,” Bell added.
British Steel could run out of the raw materials needed to keep the blast furnaces running in the coming weeks, according to people familiar with the business, prompting union concerns that a June closure is inevitable unless the two sides return to the negotiating table.
“Our biggest concern is raw materials,” said Alasdair McDiarmid, assistant general secretary at Community.
The company, he told the Financial Times, did not have enough raw materials such as iron ore and coking coal for the blast furnaces to “get past June”. Unless an agreement was reached in a “small number of weeks,” the furnaces would “probably close in June by default,” he added.
The closure of British Steel’s two furnaces would leave the UK as the only G7 economy without the ability to make steel from scratch. Unions and other industry stakeholders are also worried it could lead to a flood of imports from abroad.
Network Rail, the public body which owns the UK’s railway infrastructure, is particularly exposed to the future of UK steelmaking, as 95 per cent of the steel it uses to build tracks is made at the Scunthorpe plant.
But Network Rail said it has built up around a year’s supply of steel, after stockpiling as a contingency measure. It believes it could eventually switch over to European imports without disrupting its work programme or passenger services.
The government declined to comment but pointed to remarks by business secretary Jonathan Reynolds on Thursday that the government would continue “working tirelessly to reach an agreement with the company’s owners to secure its future and protect taxpayers’ money”.
Additional reporting by Philip Georgiadis
