British Steel which is the country’s second largest steel producer has been ordered into liquidation as it struggles with industry-wide troubles and Brexit, threatening 25,000 jobs.
The company had asked for a package of support to tackle issues related to Britain’s pending departure from the European Union. Talks with the government failed to secure a bailout, and the Insolvency Service announced the liquidation on Wednesday.
British Steel is owned by the investment firm Greybull Capital and employed around 5,000 people, mostly in Scunthorpe, while 20,000 more depend on its supply chain.
Greybull Capital, which specializes in trying to turn around distressed businesses, said it had tried to keep British Steel alive but the challenges of Britain’s looming exit from the European Union proved insurmountable.
What led to the liquidation of British Steel?
In 2016, Greybull Capital has brought British Steel for one euro from Tata Steel and pledged to invest 400 million euros to revive the company. Although within months it boasted of return to profits and bright future ahead, two years later it entered into insolvency. The company’s top management blamed weak market demand, high raw material prices, the weakness of sterling and uncertainty over the outcome of Brexit discussions.
Is Brexit is to be really blamed?
Brexit has been a really important factor for British Steel’s crisis. Steel contracts are usually signed well in advance of the products being delivered. Now, UK is to leave European Union on 31 October and the terms of separation are yet to be agreed to result which British Steel’s overseas customers do not know what tariffs will apply to steel they buy from the company. Subsequently, the company’s order from EU dried up and it failed to inject the cash required to replace the drop in sales by the time favorable Brexit deal could be signed.
Why the government didn’t bail-out British Steel?
The current government in UK does not support bail out programs unless absolutely unavoidable. Also, the government has already loaned the company 120 million Euros to help it pay an EU bill for its carbon emissions. Apart from this, the date of Brexit has already been delayed once and the government did not want to lend British Steel money to tide it over in the hope of a Brexit deal that may not come.
On the other hand, the official stance is that British Steel and its bank lenders wanted the government to lend the company 30 million Euros on terms that were not commercial, which would have been unlawful under EU state aid rules.
The trouble in UK’s entire steel industry
The UK’s steel industry is in trouble since the past few years because of the variety of factors including overcapacity in EU and influx of cheap Chinese imports. The closure of the Redcar steelworks in 2015 was a significant blow to the sector and left the UK with only two blast furnace steelworks, which make steel from raw materials: Scunthorpe and Tata Steel-owned Port Talbot in south Wales.
There are also four electric arc furnaces in the UK, which make products from recycled steel. There are three of these sites in Sheffield and one in Cardiff. An industry that employed 323,000 people in 1971 now employs less than a tenth of that, at 31,900. British Steel is the only UK producer of rail, and a vast array of construction products. A loss of this would mean Britain has no choice but to import increasing volumes of steel for construction and infrastructure projects.
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