UK officials and industry experts have started work on an “investment case” to attract a buyer for British Steel, after the government dramatically stepped in to seize control of the company.
Ministers are concerned that there is currently no “end point” now they control the Chinese-owned steelmaker, according to two people familiar with the situation.
“The difficulty now is that there is no end point unless we find a third party,” said one of the people.
While the focus was on finding a private sector investor for British Steel, there was also a need to “work on the long-term demand side and [be able to present] a sustainable business case,” the person added.
Action on energy costs, which have long been a challenge for the steel industry with producers paying 50 per cent more for electricity than competitors in France and Germany, is seen as integral to this, according to the people.
The work is being carried out in conjunction with the Steel Council, which was launched by the government at the start of the year to advise on how to rebuild the industry.
A Department for Business and Trade spokesperson said: “We acted quickly to ensure the continued operations of the blast furnaces but recognise that securing British Steel’s long-term future requires private sector investment.
“We are working closely with Jingye and a range of third parties on options for the future, and we will continue work on determining the best long-term sustainable future for the site.”
Business secretary Jonathan Reynolds has been seeking new entrants to the UK steel industry for months, even before the crisis escalated at British Steel.
The US is now viewed as one obvious option given the number of steel companies based there, and the previous interest shown by some of them in gaining a footprint in the UK. Ministers have previously described American steel groups as being among the “best in class” thanks to their cutting-edge technology.
Officials cautioned that it was likely to take time to find a buyer for British Steel, but stressed that work on this had started.
Reynolds triggered the recall of parliament on Saturday to pass emergency legislation to allow the government to take control of British Steel after talks with Jingye, its Chinese parent, over taxpayer support to invest in greener technologies collapsed.
The government has put aside £2.5bn as part of a green steel fund to invest in the industry, which has been in decline for decades. One industry expert said there was an acknowledgment from ministers that any offer of investment would have to include government support.
Reynolds had offered £500mn to Jingye to help it restructure its operations and invest in two less carbon-intensive electric arc furnaces.
One industry banker said that despite the current uncompetitive electricity prices for the sector, credible bidders could emerge if the UK managed to seal a trade deal with the US over import tariffs. US players, including Nucor, pioneered the use of electric arc furnaces, he said, while European investors may also take a look.
“What’s not to like? You can build electric arc furnaces next to the current blast furnaces on British Steel’s Scunthorpe side, benefit from a subsidy, get a ready-made customer base and have a government that is desperate to sell,” said the banker.
