The future of British Steel hangs in the balance, with a daily cost to the government that's now over £1.2 million. This crisis has been brewing for nearly a year, and it's time to confront the hard truths.
The Cost of Steel: A Heavy Burden
British Steel, once a cornerstone of the UK's industrial might, has been losing a staggering £700,000 daily. When its Chinese owner, Jingye, announced plans to shut down the Scunthorpe steelworks, the government stepped in with emergency measures. But this intervention comes at a price, and it's a price that keeps rising.
The latest bill disclosed to parliament is £359 million, but this is likely just the beginning. The government is essentially propping up a struggling industry, and the question remains: for how long, and at what cost?
A Troubled Industry
The UK steel industry is facing an unprecedented crisis. Production has plummeted, with the country's output last year reaching a mere 2.5 million tonnes - the lowest since Queen Victoria's reign. This decline is largely attributed to the temporary shutdown of Tata Steel's Port Talbot steelworks as it transitions to more environmentally friendly electric arc furnaces.
The government's official receiver is also managing the arc furnaces at Speciality Steel UK (SSUK) in South Yorkshire, adding another layer of complexity to the situation.
The Jingye Barrier
The first hurdle is Jingye, the Chinese company that owns British Steel. Despite not having actual control, Jingye is the legal owner and has requested a substantial £1 billion in compensation to give up ownership. This is a significant barrier, as most observers believe this sum is unlikely to be granted for a loss-making plant.
Jingye's ownership has already resulted in significant financial support from the government, including a £120 million grant in 2022. The government's assessment acknowledges that a more interventionist approach could deter foreign investors and lead to diplomatic criticism.
A Complex Web
The fate of SSUK, formerly part of Sanjeev Gupta's Liberty Steel empire, is intertwined with British Steel's future. Officials prefer a single buyer for both, which could see SSUK supplying steel to Scunthorpe's rolling mills after investing in new casting equipment. This shift to electric arc furnaces is seen as a potential solution, as construction projects increasingly prioritize lower carbon emissions.
However, unions oppose this plan, fearing job losses at Scunthorpe. With Reform winning the Greater Lincolnshire mayoralty last year, job losses under a Labour government would be a damaging symbol in the area.
The Long-Term Outlook
In the long run, the number of workers will inevitably decrease. Building an electric arc furnace and connecting it to the grid could take years, and these furnaces require far fewer workers. Unions are pushing for the government to invest in jobs in other parts of the business.
Several executives suggest the government may need to reconsider its pledge to retain the capability to produce 'virgin' steel from iron ore. The government's impact assessment highlights the strategic liability of relying on foreign suppliers in times of conflict.
Veteran metals executive David Murray argues, "If we've got to import everything, we can be held to ransom."
Professor Cameron Pleydell-Pearce suggests that going for EAFs might make British production more resilient due to the UK's abundance of scrap metal. However, he advocates for a more agnostic approach to technology, considering newer techniques for iron ore reduction.
A government spokesperson emphasizes their commitment to supporting British steelmaking and communities, stating, "We saved British Steel from collapse, protecting thousands of jobs."
A Long Road Ahead
The Jingye problem is far from resolved, and finding a long-term owner is an even more daunting task. While there is interest from potential buyers like US-based retail investor Michael Flacks, who could combine Scunthorpe with an Italian plant, the lack of steel experience raises questions.
Officials insist there is significant interest, but it's early days. As one source put it, "A global steelmaker might buy it, but they'd want the finished article."
The government's control over British Steel may continue for years, with some estimating it could take four to five years before it's back in private hands.
The future of British Steel is uncertain, and the cost of maintaining it is a heavy burden. What do you think? Should the government continue to support British Steel, and at what cost? The debate is open, and your thoughts are welcome in the comments.
