A Pricey Rescue: British Steel to receive £300 million support package from the government

August 15, 2019

2 min read

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What's going on here?

The Turkish company, Ataer has made a bid of £70 million to buy British Steel out of insolvency after the government announced that it would provide a £300 million support package to British Steel.

What does this mean?

Following the collapse of British Steel into insolvency in May, the British government is set to announce a preferred bidder for British Steel within days, as it scrambles to save over 5,000 jobs in Scunthorpe and a further 20,000 jobs in the supply chain

The Department for Business, Energy, and Industrial Strategy (BEIS) is understood to have signed off on a package worth £300 million, which will include grants, possible indemnities, and loans on commercial terms to the winning bidder. Industry and government sources confirm that Ataer, a subsidiary of Oya, the largest shareholder in Turkish steelmaker Erdemi, are the frontrunners to save British Steel. 

A source close to the discussions, which are being led by EY said a deal would result in the production of “the greenest steel in Europe” as Atear plans to convert British Steel’s Scunthorpe plant to using gas in the next few years.

What's the big picture effect?

The government hopes that the sale of British Steel along with its £300 million support package will allow for a revival of the industry which in the past has been connected to British industrial strength. However, it is hard to see how the money from the sale and support package can be recovered. Bloomberg data shows that demand concerns and higher steel inventories have been weighing on steel prices, which have impacted global steel mills’ profit margins. Iron ore prices, for example, are down 18% so far this month as the worldwide trend has been to reduce steel mill operating rates due to low profitability rates. Thus, many question whether British Steel has a viable future, as China dumps cheap steel on the global market to beat out competitors.

Greybull Capital, the investment firm that owned British Steel before its collapse in May, has blamed Brexit strains for its financial failure. Greybull has argued that the uncertainty surrounding Brexit has led to a fall in European orders, prompting British Steel’s financial struggles. While other companies across the UK and mainland Europe are certainly sharing Brexit-related financial struggles, many have also pointed to Greybull’s poor management history. Furthermore, in an industry that has suffered from decades of closures and job cuts, can Brexit truly be blamed for its downfall?

The British steel industry faces a shaky future, given the uncertainty of Brexit and the rise of China’s giant steel industry. Nonetheless, if the deal is concluded, it would provide a rare slice of good news for the UK’s struggling steel industry.

Report written by Lina Jeffcock

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