Jingye seals the deal with trade unions & finalizes the acquisition of British Steel

Since its inception in 2016 steel maker British Steel Limited had a tough journey till now. The company, founded by assets acquired by British Investment company Greybull Capital from Tata Steel UK, is now finding its way into the hands of Chinese steel making firm Jingye. Beleaguered by cheap imports of steel products into United Kingdom, the company has been in financial distress all along. The present deal could be a last-ditch effort to save the company from falling into insolvency and save the jobs of nearly 4000 workers.

First, starting life as British Steel Corporation in 1967, the company was an Iron and Steel major of the United Kingdom. Once donning the FTSE 100 index, the company soon fell into distress by the 1980’s requiring re-privatization and rebranding as British Steel. This company also by 1999 was waning financially and merged with Koninklijke Hoogovens to form the Corus group on 6 October 1999. This group was again taken over by the Indian Steel Operator Tata Steel in 2007 and renamed as Tata Steel Europe Ltd in September 2010. At that time the company operated traditional blast furnace based steel making facility in Port Talbot in Wales, Scunthorpe and Teesside in England and Ijmuiden in the Netherlands; there was one Electric Arc furnace steel making facility in Rotherham in England along with long product and flat product manufacturing facilities. The financial crisis period of 2008 however, proved to be too harsh for the company to handle and it soon fell to financial distress. The Teesside facility of the company was mothballed and sold off in 2009/10 and the Scunthorpe facility along with its long products division was sold off to Greybull Capital in April 2016. On 22 May 2019, after sustained losses and a failed rescue bid with the British Government, the company was placed under administration by its owners Greybull Capital. Her Majesty’s government took control of the company and appointed Ernst and Young as special managers and agreed on an indemnity to the official receivers of the company to keep the company running while a suiter was found to acquire it. The search ended in November 2019 when Jingye Group of China agreeing in principal to buy the company for a paltry sum of £70 million.

The steel making industry in the United Kingdom has been on the shrinkage for the past decade now. The European Union regulations ensured that steel manufacturers from smaller countries within the Union were able to get access to the advanced markets of United Kingdom. These countries had cheaper manufacturing facilities and were able to hire labor at far lower wage rates compared to what could be made available in the United Kingdom. Over a period of time, these extensive imports of steel products into the United Kingdom led to the eventual weakening of the steel manufacturing capability of the British steel companies. British Steel companies, which were once the pride of British industrial prowess and having played a pivotal role in the development of the country, were now slowly inching towards decimation. The industry which employed nearly 300,000 people in United Kingdom in 1971 had by 2019 only 10,000 on its rolls.

Another important reason for the eventual down fall of the traditional steel making industry in the United Kingdom is the change in attitude of people towards this highly polluting industrial process. The traditional basic Oxygen reduction steel making process is one of the most polluting industrial processes known in the world. Â The process requires significant amounts of coal to smelt iron ore to basic liquid pig iron and in the process emits dangerously high quantities of carbon dioxide, carbon monoxide, nitrous oxide and sulfur dioxide, other than even significant amounts of solid and liquid environmental pollutants. As the industrial activity in the world increases industrial pollution also increases; now the situation has become such that high pollution levels is threatening various forms of life itself and making living difficult for others including that of humans. Given the potentially dangerous situation that has developed many governments and non-governmental organisations are discouraging the use of such industrial processes and encouraging processes that are lesser polluting substitutes.

In the United Kingdom as well there is now a campaign to reduce the usage of coal usage in the country, if not possible to complexly eliminate its usage. The British government also plans to completely shut down coal-based power plants in the country and replace it with renewable sources of power and shut down the last of the coal mines in the country within the turn of the next decade. The European Union also has on its part enacted several environmental regulations which puts penal tariffs on such polluting industries, making it difficult for them to continue with their old ways. Moreover, there are also other technologies within the steel making process that are less polluting than the basic oxygen reduction smelting process that is being preferred more by steelmakers worldwide which is also one of the primary reasons for the aversion to the basic steel making process.

The electric arc furnace technology and the HIsarna process technology are the two technologies that are fast replacing the basic oxygen reduction smelting process. In the Electric arc furnace steel production process, scrap steel is placed in specially designed ladles into which large graphite electrodes are immersed which use high electrical voltage to create electrical arc, which reduces the iron scrap to usable molten steel. The process however is highly energy intensive and is more expensive that the basic oxygen reduction smelting process. The second technology which is now getting greater acceptance in the industry is the HIsarna process technology which uses a cyclone of iron ore and oxygen to create friction which partly converts the iron ore to liquid iron to be further augmented by coal dust to complete the steel smelting process. This process not only reduces the cost of steel smelting significantly but also reduces the cordon footprint of the steel making process to less than 50 per cent compared to the Basic oxygen reduction smelting process. The active adoption of these two processes worldwide means that the basic oxygen reduction smelting facilities will soon be out of use.

The primary asset of British Steel is its Scunthorpe Steelworks facility which is a basic oxygen reduction smelting facility. It is highly unlikely that given the situation that is developing in the United Kingdom against this process, its owners would be able to operate it profitably for long. The other assets of the company, the long products manufacturing process and the Flat products manufacturing process have a better future. The new economic environment in the Post Brexit period will put more focus on increasing manufacturing activities in United Kingdom. The new owners of the company would do well if the adopted either of the Electric arc furnace technology or the HIsarna process technology is used to replace the process at the Scunthorpe Steelworks facility. The period post 31 January 2020 brings about new possibilities for all in the United Kingdom and could very well be the turning point for British Steel if it makes the right moves.