UK holds talks with China’s Jingye to avert closure of British Steel plants

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Business secretary Jonathan Reynolds has held urgent talks with British Steel’s Chinese owner, as ministers prepare to raid Labour’s £2.5bn “green steel” war chest to try to persuade the company not to close its UK operations.

Reynolds last week met Li Huiming, chief executive of Jingye, which has owned British Steel for four years but is now threatening to walk away in a move that imperils about 2,000 jobs.

British Steel operates the last two remaining blast furnaces in the UK after Tata Steel closed its last one in September.

The Labour government has a £2.5bn war chest specifically to help companies transition towards greener steelmaking.

In private, government figures suggest that up to £2bn of that money could be used to support British Steel, although the precise level will depend on what kind of deal can be struck.

Last year British Steel announced plans to close its two blast furnaces at Scunthorpe in Lincolnshire, while also investing £1.25bn building two cleaner electric arc furnaces in Scunthorpe and Teesside.

Ministers at the time were offering a potential support package of £300mn, although British Steel had consistently asked for the same £500mn that was eventually offered to Tata Steel.

Jingye said at the time it planned to keep current lossmaking operations open while the electric furnaces were brought online.

But by September, Jingye had changed its mind and was preparing to abandon the electric arc furnaces altogether and bring forward the closure of its blast furnaces to before Christmas, according to industry and government sources.

Ministers persuaded Jingye to pull back from the brink, but are still engaged in intense negotiations to try to pull off a new, more generous deal. 

One option on the table — which would be the most expensive — would be for the government to subsidise British Steel to keep the blast furnaces open until the electric arc furnaces are completed.

“The money is now available and it is one of our options,” said one government figure, who described the £2bn figure as a theoretical upper limit rather than a working assumption inside government.

Yet despite the recent talks between Reynolds and Li, there has not yet been a breakthrough. 

Some figures involved in the negotiations are puzzled that there has not yet been a rescue deal given the generous offer on the table. 

“The Chinese are refusing to accept it for some unknown reason . . . which suggests a geopolitical issue,” said one. “Jonathan Reynolds gets it, and he’s made an offer nobody can complain about, he’s doing all he can to keep it [production] going.”

Talks have also focused on how the company can keep servicing key customers, including the UK’s rail network.

Another idea being discussed in Whitehall would be the creation of a national “direct reduced iron” plant to make iron from ore potentially using green hydrogen in the future, something that would require the involvement of several steel companies.

Electric arc furnaces have the ability to recycle scrap steel using clean energy in contrast to blast furnaces that rely on coal, but they employ fewer people than traditional blast furnaces.

British Steel recently said that pre-tax losses increased eight-fold in 2022 to £408mn and that losses had continued into 2023 and 2024.

Labour in its manifesto promised £7.3bn for a new “national wealth fund” intended to help five energy-intensive industries deal with the transition to net zero: steel, ports, gigafactories, green hydrogen and carbon capture.

The party specifically earmarked £2.5bn of this for steel on top of £500mn already promised to Tata’s Port Talbot. 

There is a concern that Tata Steel and workers in south Wales could feel short-changed by the less-generous £500mn support that they were given in September in order to switch to an electric arc furnace, a move that would lead to the loss of about 2,500 job losses. 

Any deal with British Steel is still likely to involve some job losses.

Reynolds has previously complained that the last Conservative government did not do anything to enable British Steel to build a carbon capture and storage project at the company’s Scunthorpe plant, which could have given it a “long-term future”. This has left him “heavily constrained in my options”, he told MPs.

A government spokesperson said ministers were determined not to allow the end of steelmaking in the UK.

“We’re working across government in partnership with trade unions and businesses, including British Steel, to secure a green steel transition that’s right for the workforce and safeguards the future of the steel industry in Britain.”

British Steel said it remained in “active discussions with the government”.

It added: “As part of our ongoing commitment to securing a long-term sustainable future for British Steel in Scunthorpe, we recently purchased raw materials that will see our operations continue to run into the new year.”