Fears for British steel

Materials World magazine
,
29 May 2019

After the call for liquidation of British Steel, the future of the wider industry is unclear. Ceri Jones reports.

Thousands of jobs hang in the balance as the UK’s High Court officially called for British Steel Limited to enter compulsory liquidation after failing to secure a financial rescue plan. The announcement was made on the government website on 22 May, and it stated that the Official Receiver had been appointed as liquidator.

‘The immediate priority following my appointment as liquidator of British Steel is to continue safe operation of the site. I appreciate that this a difficult time for the company’s employees and I want to thank them for their ongoing cooperation,’ read the Official Receiver statement. ‘The company in liquidation is continuing to trade and supply its customers while I consider options for the business. The court also appointed Special Managers to assist me with my work and they are engaging with staff and their representatives to keep them informed, as well as contacting British Steel’s customers.’

Union GMB responded and said the ministers had abandoned workers and UK industry. ‘This is devastating news for the thousands of workers in Scunthorpe and across the UK. Consecutive UK governments have failed to protect our proud steel heritage, and now this Prime Minister is overseeing its demise,’ said GMB General Secretary, Tim Roache. ‘Ministers should have been ready to make use of all the options, including nationalisation, in order to save British Steel, but they either don’t care or wouldn’t take off their ideological blinkers to save hard working people and communities.’

Winding up British Steel will impact more than 4,500 direct jobs, but the Official Receiver and appointed special managers said ‘staff have been paid and will continue to be employed’ during the process.

No hope of rescue

British Steel is the UK’s second-largest steel producer. As well as employing thousands of people at its sites at Scunthorpe and Teeside, it supports an estimated 20,000 through its supply chain.

On Tuesday 14 May, the company requested a £75mln loan it said was due to ‘uncertainties around Brexit’, a weak pound and fallout from the US-China tariff wars. But it managed to pull in enough funding to support operations until the end of May, while bailout negotiations took place. Just two days later, the government signed a pledge to buy more British-made steel over imports, to increase the domestic proportion of the estimated £2.5bln spend on steel over the next five years. But this was too little too late, and the options of a management buyout or temporary nationalisation were considered unrealistic due to the company’s high degree of financial instability.

Up until three years ago, British Steel was the long products business of Tata and recorded losses of up to £79mln a year. In 2016 it was sold to Greybull Capital for £1, and the new owners planned to invest £400mln into the business, and quickly brought the company back to profit – but this did not last.

Only two weeks before the latest loan request was made, Greybull was granted £100mln to help pay its EU carbon emissions fees to avoid a fine of half a billion pounds, according to Secretary of State for Business, Energy and Industrial Strategy, Greg Clark.

The wider view

British Steel’s plea was announced in the same week Tata Steel Limited’s merger with Thyssenkrupp AG fell through. The collapse was due to so-called excessive demands from the European Commission in order to meet competition law, and left Tata group looking for an alternative way to address its US$13.15bln debt.

Welsh steel is now also at risk as company owner, Tata India, has been looking to divest its European assets since 2016, and this failed merger has raised concerns for jobs at the Trostre and Port Talbot sites, as well as for the UK steel industry at large.

Successive crises for UK steel companies are highlighting serious problems in the health of the industry, and also of government support and effectiveness of its Industrial Strategy. While it seems vital for the government to safeguard jobs and provide ongoing support to create a healthy steel manufacturing industry, it is also highly unlikely to continue funding failing businesses – and even industries – as past evidence has proven.

This story was correct at time of writing but is still developing so please refer to the Materials World website for updates.