UK talks with China's Jingye to prevent closure of British steel plants

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Business secretary Jonathan Reynolds held urgent talks with the Chinese owners of a British steel company. Ministers are preparing to seize Labour's £2.5 billion green steel war chest in a bid to persuade the party not to shut down UK operations.

Reynolds last week met Jingye CEO Li Huiming, who has owned British Steel for four years but is now threatening to leave the company in a move that threatens about 2,000 jobs.

British Steel operates the last two remaining blast furnaces in the UK after Tata Steel closed its last in September.

The Labor government has set aside $2.5 billion specifically to help businesses transition to greener steel manufacturing.

In the private sector, government figures show up to $2 billion of this money could be used to support British Steel, although the exact level will depend on what deals can be struck.

Last year, British Steel announced plans to invest $1.25 billion to build two clean electric arc furnaces in Scunthorpe and Teesside, while also closing two blast furnaces in Scunthorpe, Lincolnshire.

Ministers at the time proposed a potential support package of $300 million, but British Steel ultimately went on to request $500 million, the same amount offered to Tata Steel.

Jingye said at the time that it planned to continue operating at a loss while the furnace comes online.

But by September, Jingye had changed its mind and was preparing to abandon electric arc furnaces altogether, bringing the furnace closure before Christmas, according to industry and government sources.

Ministers have persuaded Jingye to step back from the brink, but negotiations are still fierce to hammer out a new, more generous deal.

One costliest option would be for the government to subsidize British Steel to keep the furnaces open until the electric arc furnaces are completed.

Funds are available now and this is one of our options, a government official said, describing the $2 billion figure as a theoretical upper limit rather than a real assumption within the government.

But despite recent talks between Reynolds and Lee, there has yet to be a breakthrough.

Some involved in the negotiations are puzzled that a rescue deal has not yet been reached despite the generous offer.

China is refusing to accept it for unknown reasons, suggesting geopolitical issues, one official said. Jonathan Reynolds got it, made a proposition that no one could complain about, and did his best to keep it. [production] I'm going.

Conversations also focused on how the company could continue to serve its key customers, including the UK rail network.

Another idea being discussed in Whitehall is to establish a national direct reduced iron plant to make iron from ore, potentially using green hydrogen in the future, which would require the involvement of several steel companies.

Unlike blast furnaces that use coal, electric furnaces have the ability to recycle scrap metal using clean energy, but require less manpower than traditional blast furnaces.

British Steel recently said its pre-tax losses had increased eight-fold to $408 million in 2022, with losses continuing in 2023 and 2024.

In its manifesto, Labor pledged $7.3 billion in a new sovereign wealth fund to help five energy-intensive industries – steel, ports, gigafactories, green hydrogen and carbon capture – deal with the transition to net zero.

The party has earmarked $2.5 billion specifically for steel, on top of the $500 million already pledged to Tatas Port Talbot.

There are concerns that workers at Tata Steel and in south Wales could feel shortchanged by the meager $500 million support it provided in September to switch to electric arc furnaces. 2,500 job losses.

The deal with British Steel is still likely to involve some job losses.

Reynolds previously complained that the last Conservative government did nothing to enable British Steel to build a carbon capture and storage project at the company's Scunthorpe plant, which could have given it a long-term future. This has greatly limited my options, he told lawmakers.

A government spokesman said ministers had decided not to allow a halt to UK steel production.

We are working with unions and businesses, including British Steel, across government to secure a green steel transition that is fit for the workforce and protect the future of the UK steel industry.

British Steel said it was continuing active discussions with the government.

Additionally, as part of our ongoing efforts to secure a long-term sustainable future for British Steel in Scunthorpe, we have recently purchased raw materials that will enable us to continue operating into the new year.

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