British Steel is closing in on a taxpayer support package that could be worth as much as £500mn to help it preserve the future of its flagship site at Scunthorpe as part of a switch to greener forms of steelmaking.
UK ministers earlier this year offered £300mn in aid but Chinese owner Jingye wants the same amount that was given to larger rival Tata Steel as part of an agreement struck in September, according to two people familiar with the situation.
A package of about £500mn now looked like the “landing zone” for a deal, said one government official, although they cautioned that a final agreement was not guaranteed and could still be weeks away.
The talks come as Jingye, which bought the country’s second-biggest steelmaker out of insolvency in 2020, is close to finalising its proposals on how to restructure British Steel’s operations including the impact on its 4,000-strong workforce.
The company has previously warned it is losing close to £1mn a day. An announcement of its plans could come as early as next week.
British Steel declined to comment on the request for bigger taxpayer support but said that “as part of our journey to net zero it is prudent to evaluate different operational scenarios to help us achieve our ambitious goals and we are continuing to assess our options”.
The government said it was continuing to “work closely with industry, including British Steel, to secure a sustainable and competitive future for the sector and its workers”.
It added: “Ultimately, it is for British Steel to manage commercial decisions for the future of the company, and we cannot comment on ongoing commercial negotiations.”
Like Tata, British Steel plans to close its two blast furnaces at Scunthorpe and move to less carbon-intensive electric arc ones.
Unlike blast furnaces which use coke to reduce iron ore, electric arc furnaces melt down scrap or recycled steel. The company has been examining the feasibility of building one of two electric arc furnaces at an existing site at Teesside.
Closing the blast furnaces, however, will result in significant job losses. Unions have previously warned that about 2,000 jobs could be lost over time.
Britain’s steel industry is one of the most difficult and expensive to decarbonise. Tata Steel and British Steel are also facing rising costs and cheaper competition from countries such as China.
Workers at British Steel and Tata Steel UK have argued for a gradual transition to lessen the immediate impact on the workforce.
Tata Steel on Wednesday pulled an announcement that was expected to confirm the loss of 3,000 jobs at its factory in Wales at the last minute. The company wants to close its two blast furnaces as quickly as possible to stem steep losses at the plant.
Unions have threatened industrial action if the company goes ahead with the expected cuts. They want Tata to consider closing the blast furnaces only once the electric arc ones are already in place.
Roy Rickhuss, general secretary of the Community steel union, on Wednesday welcomed the decision not to announce the job cuts. It was important that the company “now uses this opportunity to pause and engage with the unions?.?.?.?to develop alternative options to decarbonise our industry”, he said.
