Jingye Group has warned that the two blast furnaces of British Steel will not be financially viable without hundreds of millions of pounds of government assistance.
The owners of Britain’s second-largest steel maker are requesting an urgent package of financial assistance from taxpayers in light of increased concerns for thousands of industrial jobs in northern England.
The Jingye Group, which rescued British Steel from bankruptcy in 2020, has informed lawmakers that the company’s two blast furnaces are unlikely to be profitable without government assistance.
British Steel, located in Scunthorpe, north Lincolnshire, employs approximately 4,000 people, with thousands more jobs relying on the company’s supply network.
The request from Jingye causes the new business secretary, Jacob Rees-Mogg, a big headache on the eve of the Conservative Party’s annual conference in Birmingham.
To keep the Scunthorpe blast furnaces functioning, it is believed that the Chinese industrial conglomerate will require “hundreds of millions of pounds,” although the actual amount of funding sought by the group was unclear as of the weekend.
In addition, it was unclear if any financial assistance would take the form of a loan or a grant.
According to an insider, Jingye was prepared to lay off thousands of employees if its proposal was denied by ministers.
According to the source, it would then want to import steel from China for rolling at British Steel’s UK facilities.
This past weekend, the government announced that it was “working quickly with the corporation to determine the best course of action as it seeks a more sustainable future.”
A representative for the Department for Business, Energy, and Industrial Strategy stated, “We recognize that industries, especially steel makers, are experiencing the effects of high global energy prices, which is why we have established the Energy Bill Relief Scheme to reduce costs.”
This is in addition to the more than £780 million in energy cost assistance we have granted to the entire steel industry since 2013.
Energy customers in the industrial sector have complained for months that escalating prices threaten their capacity to continue investing, with ambiguity persisting around the duration and cost of a recently announced government subsidy program.
A decision regarding government funding provides Mr. Rees-Mogg, who assumed the position of business secretary less than a month ago, with politically unattractive options.
If no state financing is made available and considerable numbers of jobs are eliminated, it would undercut a central component of Boris Johnson’s administration’s ‘leveling-up’ plan.
However, Tory critics of Beijing would almost surely be outraged by an arrangement to grant large taxpayer funding to a Chinese-owned enterprise.
After years of international trade disputes over dumping, China’s prominence in global steel production would make any subsidies considerably more problematic.
A spokesperson for British Steel stated, “We are spending hundreds of millions of pounds in our long-term future, but like the majority of other businesses, we face a tremendous challenge due to the economic slowdown, rising inflation, and very high energy and carbon pricing.
We applaud the recent announcement by the UK government to cut energy costs for businesses, and we will continue to work with government authorities to ensure that we have a level playing field with our international competitors.
It is the second time in just more than three years that British Steel’s future has been called into question.
In May 2019, the Official Receiver was appointed to assume control of the company following the breakdown of discussions for a £30 million emergency government loan.
British Steel was founded in 2016 after India’s Tata Steel sold its business to the investment firm Greybull Capital for £1.
As part of the agreement that gave Jingye ownership of British Steel, the Chinese company stated that it will invest £1.2 billion over the next decade to modernize the company.
Mr. Johnson lauded the completion of Jingye’s acquisition of the company in the spring of 2020 as ensuring the long-term viability of steel manufacturing in Britain’s industrial heartlands.
He stated that the sounds of these steelworks have long reverberated over Yorkshire, Humber, and the North East.
“Today, as British Steel takes its next steps under Jingye’s leadership, we are confident that these will reverberate for decades.
“I’d want to congratulate every British Steel employee in Scunthorpe, Skinningrove, and Teesside for their devotion and fortitude over the past year, which has kept the business growing.
“Jingye’s promise to spend £1.2 billion in the industry is a welcome boost that will not only safeguard thousands of jobs but also assure the continued success of British Steel,”
Tata, which controls the massive Port Talbot steelworks in Wales, is the largest steel manufacturer in the United Kingdom.
In recent months, it has also sought government assistance, with the Financial Times reporting in July that the Indian-owned company was seeking £1.5 billion in state cash to decarbonize its operations.
Liberty Steel, the third-largest participant in the industry, had a request for £170 million in state aid denied by Kwasi Kwarteng, the business secretary at the time.
As chancellor, Mr. Kwarteng will play a crucial role in determining the outcome of Jingye’s request for financial assistance.
This weekend, it was unclear how quickly ministers would reach a conclusion or whether either side had enlisted experts to assist with negotiations.
A government insider noted that a variety of assistance programs for heavy industry remained active.
