Fears grow for British Steel’s rescue deal

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The UK government is struggling to seal a deal with British Steel to secure the future of the country’s second-largest steelworks 18 months after the Chinese-owned company asked ministers for a £500mn financial aid package.

Jingye, which bought Britain’s second biggest steelmaker out of insolvency in 2020, is yet to submit a detailed, fully costed proposal that can be put before the Treasury for approval, according to people familiar with the matter.

The potential aid package would keep steelmaking alive at British Steel’s flagship Scunthorpe site by funding a switch to greener forms of steelmaking that would protect some jobs.

“There are definitely some jitters right now, this was meant to be agreed around the New Year,” said one government figure. “The pace of the talks has visibly slowed, it’s not clear how much progress is happening.”

Industry and government figures said talks were continuing and that an agreement could still be struck by the summer. Two people close to the situation said Jingye would soon submit a full proposal.

A deal for the Scunthorpe site would mirror a similar agreement with India’s Tata Steel plant at Port Talbot in south Wales.

Tata Steel is receiving £500mn of state support to help its transition to producing green steel through electric arc furnaces, which are less carbon-intensive and require fewer workers.

Up to 2,800 Tata Steel jobs are set to be lost. Tata’s national-level consultation with unions is expected to end next week, when the company could confirm it will close its two remaining blast furnaces as soon as September. Unions have been balloting members over industrial action about the proposed cuts, with Unite voting in favour last week. 

Likewise British Steel said last November that it would also close its two blast furnaces and instead build two electric arc furnaces, including one at its Teesside site, meaning up to 2,000 job cuts.

The company said the restructuring would require £1.25bn of investment and would be contingent on securing some state support.

Britain’s two remaining blast furnace operators have long warned they need help to cover the costly shift towards less energy intensive forms of steelmaking. At the same time, they have suffered from high energy costs compared with continental rivals and challenging market conditions.

British Steel has previously said it was losing £1mn a day. Its auditor resigned in January after warning that there was “material uncertainty” over the company’s ability to continue operating without another injection of funding from Jingye.

In October 2022 the Financial Times reported that Jingye wanted £500mn of government support. Ministers have offered a lower figure of £300mn.

Ministers are expected to demand similar conditions from British Steel that they won from Tata, including long-term promises on research and jobs. 

British Steel said the “process is ongoing to finalise detailed plans as per scheduled timescales”.

The company added it remained committed to the UK and said owner Jingye “continues to stand resolutely by our side after ensuring we overcame the significant financial challenges posed by Brexit, the pandemic, and the global economic crisis”.

While talks with the UK government were continuing, the company warned that given challenging market conditions, “it is imperative swift and decisive action is taken to ensure a sustainable future for British Steel”.

The Department for Business and Trade said: “We have offered British Steel a generous support package including more than £300mn of investment for them to cut emissions, help safeguard jobs and create a positive future for steel production. Discussions with the company continue.”

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