British Steel owner preparing to bring forward blast furnace closures

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The Chinese owner of British Steel is preparing to bring forward plans to close its blast furnaces in Lincolnshire as talks with the government over a £500mn state aid package to move to greener forms of production have stalled.

The closure by Jingye, which would put at risk thousands of jobs at British Steel’s flagship Scunthorpe site and leave the UK unable to make steel from scratch, is expected to happen before Christmas, said people familiar with the talks.

Unions have previously raised fears that about half of the company’s 4,500-strong workforce could be made redundant in such a scenario.

One person close to the talks said a crunch point would come in mid-September and that there were signs of ministers and Jingye not reaching a deal.

“The likely outcome is the blast furnaces at Scunthorpe to close with thousands of direct jobs . . . to go before Christmas,” he said. 

Ministers are meanwhile moving closer to a revised taxpayer-backed accord with Britain’s largest producer, Tata Steel, that will preserve steel making via electric arc furnaces at Port Talbot in south Wales, albeit also with job losses, according to people familiar with the talks. An announcement could come as early as next week, the people said.

The closure of the Scunthorpe furnaces with no compromise deal in place over how to transition to electric arc furnaces would be a blow to the government’s promise that decarbonisation of Britain’s steel industry would not lead to deindustrialisation.

Labour has said it would make £2.5bn available as potential assistance to the industry as it decarbonises. That would be on top of the £500mn already offered to Tata by the previous Conservative government.  

China’s Jingye has been in talks with the government for more than two years over taxpayer aid to help British Steel, the second-largest producer, move to greener forms of production at Scunthorpe.

The company — a key supplier for UK rail — last year proposed keeping its two blast furnaces online while it builds two less carbon-intensive electric arc furnaces as part of a request for more than £500mn in direct investment support. 

As part of its proposal to close the blast furnaces early, British Steel put forward the option of importing semi-finished steel from abroad, including from China, in order to keep supplying its key rail customers while the two electric arc furnaces were built, a process that could take three years.

Such a move would require approval from rail authorities to ensure appropriate safety standards are met. But industry and Whitehall figures said the government was minded to reject any such request.

Colin Richardson, head of steel at price reporting agency Argus Media, said “the sad reality remains, companies cannot produce steel profitably via the blast furnace route in the UK”.

British Steel has previously said it was losing more than £1mn a day and in accounts for 2021, which were signed off only in July this year, said it had made “significant losses” in 2022, 2023 and 2024 so far.

The company told the Financial Times it was in “ongoing talks” with the government about the future of its UK operations and that “while progress continues, no final decisions have been made”.

In the meantime, unions are nearing an accord with Tata on an enhanced redundancy package and investment commitments, paving the way for a deal between the company and the government, people close to the talks confirmed.

Under Tata’s deal with the previous Tory government, it would invest £750mn in the production of green steel via an electric arc furnace, triggering up to 2,800 job losses but preserving steelmaking in Wales.

That agreement was not ratified, however, before the general election in July. The new deal is widely expected to limit compulsory redundancies.

Tata said it continued to “work closely with the UK government to finalise discussions around the Grant Funding Agreement”.

The government pointed to remarks on Thursday by industry minister Sarah Jones, who told MPs the government was “clear that decarbonisation must not mean deindustrialisation”.

Talks over Port Talbot had “advanced in recent weeks”, said Jones, adding ministers continued to hold talks with British Steel “over a similar package vein”.