Citing an “unprecedented rise” in running costs, inflation and the need to make its operations greener, British Steel reported proposals to close ovens and cut 260 jobs.
At its website, the company announced proposals to close its coke ovens as part of its drive to overcome global economic challenges and build a green and sustainable future. The company, which noted that its bills for energy and carbon increased by £190 million last year, said that decisive action is required “because of the unprecedented rise in operating costs, surging inflation and the need to improve environmental performance.” That response could include the loss of up to 260 jobs at the Scunthorpe plant.
Three years ago, the struggling British Steel operation was bought out of receivership by China’s Jingye Group. British Steel CEO Xifeng Han said that for the operation to continue its crucial role, the company has to undergo “the biggest transformation in our 130-year history” because of extreme conditions. “We have taken action to reduce costs within our control; however, steelmaking in the U.K. remains uncompetitive when compared to other international steelmakers. Our energy costs, carbon costs and labor costs are some of the highest across the world, which are factors that we cannot influence directly.”
The company’s coke oven at its British Steel’s integrated steelmaking site in Scunthorpe is reaching the end of its operational life and its closure would bring environmental benefits, including reductions in emissions to air and water. British Steel held talks with the U.K. government representatives last summer, and is hoping it can help the company continue making home-made steel Britain needs for generations to come. “We’re disappointed at having to make such proposals but are confident they will support a successful transformation.”
“We appreciate this may be an unsettling period for our people and we will give them our full support. We haven’t set any deadlines but aim to keep the period of uncertainty for our colleagues as short as we can. We’ll ensure this process is handled in a sensitive manner,” Han said. He noted that the company has taken positive steps. Those include the installations of a £54 million billet caster and a £26 million mast service center, both of which are scheduled to come online this year, while a near £50 million upgrade to its wire rod mill continues and is set to be completed next year. Other investments include £30 million for new unloaders for British Steel’s port facility, £14.6 million for improvements in energy operations, £9 million for a new rail stocking facility and £12 million to upgrade IT systems.
Jingye Steel has entered into a deal to buy British Steel, which had previously agreed to be sold to a buyer—Oyak, a Turkish army pension fund—that later dropped its offer because the operations were not commercially viable.
Per published reports, China’s Jingye Steel, via its U.K. operations, has entered into a contract to buy British Steel. British Steel’s Official Receiver and others part of the process, confirmed that contracts have been entered into with Jingye Steel (UK) Ltd. and Jingye Steel (UK) Holding Ltd., to acquire the business and assets of British Steel Limited in liquidation, including the steelworks at Scunthorpe and U.K. mills and the subsidiary businesses of FN Steel, British Steel France and TSP Engineering.
The deal has yet to be finalized, and is conditional on items that include regulatory approvals and certain employee consultation procedures. “The parties are working together to conclude a sale as soon as reasonably practicable...and the business will continue to trade as normal, during the period between exchange and completion, whilst assisting Jingye to plan for the future.”
Per the reports, Jingye is a privately owned Chinese corporation founded and led by Li Ganpo a former senior Communist Party official who became a self-made industrial tycoon. His Jingye Group has interests in steel and manufacturing, chemicals, real estate, finance, trade, pharmaceutical, hotels and tourism. It has more than 22,000 employees.
Briish Steel, which includes wire rod in its product mix, was described as Britain’s second largest steelmaker after Tata Steel. The steelmaker was put into liquidation in May, years after being acquired by private equity firm Greybull Capital LLP for 1 pound.
The offer from Oyak has been reported as having been between $73 million and $85 million. At one point, Oyak had told The Guardian that it was considering doubling the production capacity of British Steel.
The Turkish Armed Forces Assistance Fund, known as OYAK, has entered a deal through its Ataer Holding subsidiary, to acquire British Steel by the end of the year.
Per multiple media reports, OYAK signed an exclusive agreement on Aug. 16 to buy British Steel, which has some 5,000 employees and represents about a third of the U.K.’s steel production. The company's product lines include wire rod. The price was not disclosed, but several reports cited a figure of £70 million.
British Steel has operations in the U.K. that include the Scunthorpe steel works where 3,000 people work, and it employs another 800 in Teesside. Per a BBC report, those sites "are a major strategic asset to our country," said Gareth Stace, general secretary of UK Steel, a trade association.
The government’s Official Receiver said several bids had been received, and described the one from Ataer, Oyak’s investment arm, as its "preferred buyer," the BBC report said. It cited the Official Receiver as saying that, "I am pleased to say I have now received an acceptable offer from Ataer. ... I will be looking to conclude this process in the coming weeks, during which time British Steel continues to trade and supply its customers as normal."
Ataer owns nearly 50% of Erdemir, Turkey’s biggest steel producer, which employs 11,530 people.
Per a report in The Guardian, Oyak has told the U.K. government that "it wants to inject £900 million into the Scunthorpe steelworks to more than double its output."
A Platt report cited the following comments. "We, as OYAK, Turkey’s largest professional pension fund, believe in the importance of merging world league players into our group," said OYAK General Manager Süleyman Savas Erdem." Accordingly, we have achieved one of the biggest achievements of the Turkish steel industry and signed a preliminary agreement to buy the industrial giant of UK, British Steel. We will continue to evaluate opportunities globally inline with our growth-oriented vision and we will continue our investments to provide sustainable high benefit to our members.
Following failed attempts to get a £30 million government loan, British Steel was placed into “compulsory liquidation” on May 22, putting some 4,200 jobs there and 20,000 related positions at risk. Despite the official designation, the company notes at its website that it “continues to trade as normal.”
Per multiple news reports, British Steel had sought further loans from the British government to remain afloat, but did not get it. Instead, the business—which was bought in 2016 for one pound by investment firm Greybull Capital—was placed in liquidation. A government statement said there was no other option, as it “would be unlawful to provide a guarantee or loan to British Steel on the terms of any proposals that the company or any other party has made,” said Business Secretary Greg Clark.
At its website, British Steel, which has a product range that includes wire rod, notes that work continues under the oversight of the Official Receiver “whilst a sales process is undertaken to find a new owner for our business.” Further, the company’s subsidiaries including British Steel France Rail SAS, FN Steel BV, Redcar Bulk Terminal, The Steel Company of Ireland Limited, TSP Projects Limited and TSP Engineering Limited “are not in insolvency and are continuing to trade as normal.”
Reports said that making steel profitably is particularly difficult in Britain, where steelmakers pay some of the highest green taxes and energy costs in the world and are saddled with high labor costs and business rates. However, a dominant matter remains the continuing uncertainty surrounding Britain’s planned departure from the EU. “The whole manufacturing sector is crying out for certainty over Brexit, unable to plan the trading relationship it will have with its biggest market. We can only state again the need to avoid a no-deal scenario at all costs,” said a statement from UK Steel.
Jonathan Owens, supply chain and logistics expert at the University of Salford Business School, said that British Steel had been struggling in a very competitive market and that a new government loan may only have delayed the inevitable failure of the company.
In December 2018, the European Commission suspended the access of British Steel to an EU program for carbon offset credits (ETS) that allowed U.K. exporters to get offset credits, citing the failure of Brexit. The U.K. government provided a large bridge loan to keep British Steel solvent, but uncertainty has hurt orders from outside the U.K. as overseas customers do not know what tariffs will apply. British Steel needs the additional funds to enable it to continue until a Brexit deal passes that can provide customers confidence as to what will happen.
Per a report in The Guardian, in 1971 the British steel industry employed 323,000 people, and that same number is now estimated at 31,900. At press time, dozens of potential buyers for British Steel have been identified.
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