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British Steel to be rescued by Chinese firm in £70m deal


British Steel Scunthorpe siteImage copyright
Reuters

British Steel is set to announce a rescue deal with China’s Jingye Group, which could safeguard up to 4,000 jobs in the UK.

Jingye Group has agreed in principle to buy British Steel for £70m.

It is understood that the government will help in the form of loan guarantees and other financial support.

British Steel has been kept running by the government via the Official Receiver since May, when the company went into liquidation.

As well as employing 4,000 people at its Scunthorpe and Teesside sites, British Steel supports an additional 20,000 jobs in the supply chain.

Another 1,000 jobs are based in France and the Netherlands – those are included in the deal too.

Since May, the company has been run at a loss by the Official Receiver, in effect a privately hired government agency.

It is expected that an agreement will be signed, but that the company will continue to be run by the Official Receiver for at least a month before being transferred.

Why is this news so important?

Gareth Stace, director general of industry lobby group UK Steel, told BBC Radio 4’s Today that the business being bought was a “significant asset to our country” as it makes up a third of UK steel production, mostly from Scunthorpe.

He said that there was a need for “very significant investment” in the Scunthorpe works and that was why the expected announcement from Jingye was “really welcome”.

“Jingye are looking to make significant investment, are in for the longer term and therefore it isn’t about keeping this site going for a year or two or a couple of years. To me, what I understand about the company, it’s about looking to the future, so we’re not going to be back in here in three years, five years, in 10 years’ time.”

What is in it for Jingye?

According to Mr Stace, British Steel’s output complements Jingye.

He says both British Steel and Jingye make wire rods, but there is one crucial difference.

“A purchase by Jingye of British Steel would certainly complement what they do there in China.

“But actually British Steel makes rail, high-quality rail and heavy sections, ie girders, which Jingye doesn’t make. [So it] not only increases the amount of different products that Jingye could make but also, much more importantly, secures a foothold in the UK.”

Will British Steel now turn the corner?

Mr Stace said he believed the steel industry in the UK could now compete globally and he was publishing a manifesto with ideas for change.

“But the problem we have is we have a uncompetitive business landscape in the UK. government can change that,” he added.

“I’m talking about energy costs, business rates, procurement – the government buying more steel from the UK – free and fair trade, and even much more support for R&D [research and development], which we are going to lose when we fall out of the EU.”

He said: “What government needs to do is give us that business landscape. We can thrive on the global market and generate highly paid, highly skilled jobs for the UK economy.”

What happens now?

It is expected that the employees will be briefed on the latest developments this morning as they come to work. A formal announcement is due later on Monday morning or early afternoon.

In the long term, it is believed that while Jingye Group has promised to increase production, it has also warned costs may need to be cut.

The Chinese group is reportedly aiming to increase production at Scunthorpe from 2.5 million tonnes per year to more than three million.

Jingye’s chairman, Li Ganpo, recently visited British Steel’s sites and met Scunthorpe MP Nic Dakin and Andrew Percy, representative for the Brigg and Goole constituency.

Mr Percy told the Grimsby Telegraph he had been given assurances over the company’s future.

Who else has been in the running?

British Steel’s previous owners, Greybull Capital, walked away, saying Brexit concerns had hit forward order books.

British Steel had been in rescue talks with Ataer, which is a subsidiary of Turkey’s state military retirement scheme Oyak.

Ataer had signed a preliminary agreement to buy the company in August.

However, hopes that the deal could be completed faded last month when the Official Receiver said the parties had failed to agree terms.

The UK industry has been struggling for a number of years amid claims that China has been flooding the market with cheap steel.

It prompted US President Donald Trump to impose a 25% trade tariff on steel imports from China and the EU among others.

Who is Jingye Group?

Jingye has 23,500 employees and as well as its main steel and iron making businesses, but also engages in tourism, hotels and real estate.

It has total registered assets of 39bn yuan (£4.4bn). According to its website, Jingye Group ranked 217th among the top 500 enterprises in China in 2019.

The firm sells its products nationwide and exports them to more than 80 countries and regions.

Jingye’s products have been used in major projects such as Beijing Daxing International Airport and the underground system in Shijiazhuang.

According to a promotional film on its website, Jingye Steel has “laid an extraordinary road of development with wisdom and perspiration”.



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