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The United Kingdom government has taken control of British steel after approving emergency legislation on Saturday. Business Secretary Jonathan Reynolds told parliamentarians that the ministers had no choice but to ensure that the two underpants at the British Steel Scunthorpe site in Lincolnshire continued to operate.
The government now faces the difficult task of executing a complex and very expensive industrial operation.
The closure of the furnaces would have been a historical turning point for the United Kingdom, leaving the country without the ability to make steel from iron ore and coal for the first time from the industrial revolution.
How much will this cost to the taxpayer?
The government has stopped below nationalization, but maintaining the operations of British Steel in operation will have considerable cost for the United Kingdom taxpayer.
Reynolds said the company’s market value was zero. But it is a great loss and the taxpayer will probably have to support those losses. Jingye, the Chinese owner of British Steel, said last month that the company was losing more than £ 700,000 per day and that it was no longer “financially viable.”
British Steel accounts showed that it took losses of £ 408mn in the billing of £ 1.7 billion until the end of 2022. He made a loss before £ 231mn taxes in 2023. He is also very indebted, with pending debts of £ 736mn at the end of 2023.
Simply run the plant will be expensive given the price of raw materials and high energy costs. Import tariffs on steel imposed by the US administration of Donald Trump are another challenge.
On Sunday, Reynolds compared the annual losses that the government would have to cover, totaling around 230 million, with the cost of the “complete collapse of the British steel.” This, he told Sky News, would be “easily more than £ 1 billion.”
Why did the government feel the need to act?
Reynolds said that after months of negotiations with Jingye, in recent days it had been clear that the company’s intention was to cancel and refuse to pay additional orders for raw materials.
The plant needed new raw materials delivered, including iron and coal, to prevent the furnaces from cooling so much that they could not continue to work. Turning them again is not impossible, but it is an expensive and long process.
The Government is also anxious to maintain the main capacity of steel creation of Great Britain. Close the two British Steel furnaces would leave the United Kingdom as the only country in G7 without the ability to make steel from scratch. The measure also prevented the loss of approximately 3,500 jobs in the company.
Reynolds said that the government had offered to pay for the materials, but Jingye made a contract for the ministers to pay hundreds of millions of pounds without any condition. This offer did not contain any commitment to ensure that money and other assets were not “immediately transferred to China.”
The people close to Foreign Minister Rachel Reeves said that it had spent last week looking for “driving through a significant change in people’s mentality in Whitehall” who originally faced any movement towards nationalization.
“He could not, in good awareness, to have delivered more money from the taxpayers [to Jingye]”One of them said.
What is the future for the United Kingdom steel sector?
The movement to take control of British steel is just a stop solution. The Britain’s steel industry has been in Declive for decades, hindered by high energy and operating costs.
The United Kingdom, said Colin Richardson, Chief of Steel of the Argus Media Price Report Agency, is “one of the highest cost regions in the world to produce steel, regardless of the production route.” “His high -oven assets are old, inefficient and hindered by chronic underestimation,” he said.
The biggest challenge is decarbonization. British Steel explosions will have to help the United Kingdom to fulfill their net commitment to zero carbon emissions by 2050.
The government has set aside £ 2.5 billion to support the sector during the transition. Last year he agreed to an £ 500 million agreement with Tata Steel to help the Indian property company restructure and move to a less carbon -intensive electric arc oven that melts recycled steel.
A similar decarbonization plan has to happen in British Steel, but this will require a significant investment. Jingye had asked the government £ 1 billion for a plan of £ 2 billion to build two electric arc furnaces in Scunthorpe.
The change to electric arc furnaces will preserve the manufacture of steel but not the manufacture of primary steel, which makes steel with raw materials.
Ministers also need to act on energy costs. Richardson said that while electric arc furnaces “benefit from lower carbon costs and the availability of household waste,” “they were not panacea without structural changes in energy costs assumed by Mills.”
