In October last year, the British government thought it had found a savior for the loss-making British Steel that would in the process save some 5,000 jobs.
Chinese conglomerate Jingye Group agreed to buy British Steel in a £50 million rescue deal and promised a further £1.2 billion of investment, the Financial Times reports.
But for the takeover of all of British Steel’s assets to go ahead, Jingye needs approval from authorities in Paris, as the steelmaker’s plant in Hayange, northern France, is deemed a strategic industrial asset by the French.
That approval is looking like it may not be given following comments reported in The Telegraph late last week.
Hayange is one of the few profitable parts of British Steel but takes its raw material from the Scunthorpe plant to make rails for France’s SNCF state-owned railway network.
Hayange relies on imports of unfinished steel produced at Scunthorpe’s blast furnaces, which are then formed into rail sections of up to 350 feet long at the French site. The site has long-term contracts with the country’s rail sector, a separate Telegraph article reports.
The French are reliant on Hayange and are reluctant to see it taken over by a relatively unknown Chinese entity, saying Jingye had provided little evidence for the £1.2 billion worth of investment promised and “the only financing they’ve provided any evidence for is £50m, the purchase price.”
While the U.K. government is very keen to get British Steel off its hands, it is currently being run by the Receivers and is costing the U.K. taxpayer in the region of £1 million a day according to The Telegraph. A successful sale to a viable buyer also would fulfill Prime Minister Boris Johnson’s pledge to “level up” or support deprived areas of the U.K. that voted for him in the recent general election.
The majority of British Steel jobs are at the sprawling Scunthorpe blast furnaces, but if Hayange were sold off separately or carved out of the Jingye deal, it is unlikely the Chinese would be interested if the best asset was removed.
The blast furnaces are seen as inefficient and old; raw steel can be made more cost-effectively at other sites. Hopes that the blast furnaces may be replaced by modern electric arc furnaces have been raised from time to time. However, no one has put down a hard marker that they would invest, despite reports that two American steelmakers and an unnamed fourth player (in addition to Jingye) are interested in building a new electric arc furnace that the local mayor, Ben Houchen, hopes could produce up to 3 million tons of steel a year.
Industry insiders worry about Jingye’s intentions.
Why would they want to buy a loss-making steel mill? Some worry it be a vehicle to bring in cheap Chinese steel and undermine the local market.
Tata Steel already has a loss-making blast furnace operation at Port Talbot in south Wales, the paper observes. More Chinese imports are the last thing they need.
For now, French objections have stirred interest from several European steelmakers hoping the U.K. government may spin off the Hayange rail mill, but with the slim chance of the Jingye deal going through without it, a separate sale is unlikely.
As we observed last year, this was never going to be an easy road, particularly with the U.K. priority being to keep the loss-making operations running and providing full employment.