British Steel – What’s Next?

Following on from yesterday’s post on the British Steel insolvency development, today, amid devastated protestors asking the Government to nationalise the firm or find a buyer quickly, MPs have taken up the baton to question the investors of British Steel about the reasons behind the financial failure.

In the run up to Wednesday’s news that the firm had been taken under official receivership by the UK Government, the firm had partly blamed Brexit uncertainty, partly blamed the EU’s withdrawal of Carbon Credits and partly blamed the weakness of the pound.

The Brexit uncertainty pertains to falling sales to European clients owing to their nervousness about the UK’s relationship with the EU member states post-Brexit. The withdrawal of Carbon Credits forced the company to approach the government for a loan to cover cost of buying the credits as part of the EU initiative to limit emissions. And the weakness of the pound did not fare them well with increased iron ore prices and energy costs that have been squeezing margins.

But, as our Editor and co-founder, Stuart Burns, of sister site MetalMiner asks “does that, as many claim, mean that the British government should step in and either nationalise or otherwise financially support the company?”

He argues: “Ministers claim they are prevented by EU rules from providing state aid in such circumstances and that to extend aid would be illegal. While direct state aid is against EU rules, there is nothing to stop the British government offering loans on commercial terms as it did with £100 million provided last month to fund the carbon tax credit shortfall. The reality is the British government can probably see little chance of ever getting their money back and indeed last month’s loan will only be recoverable in the autumn if the company is still running and gets its carbon credit back. Not surprisingly those with an adverse view towards the European Union stridently point out that if we were not in the EU we could simply bailout British Steel much as previous governments did with Rolls-Royce, British Leyland and various other large industries considered at the time too big to fail.”

He also points out that such EU state subsidy rules were brought in precisely to counter European governments bailing out failing industries. And in answer to the call for British Steel to be rescued because it plays a crucial role in the production of steel for defence and domestic infrastructure, he reminds us that “much of the company’s output is exported and the UK imports most of the specialist steel it needs for critical defence applications. Notoriously Britain’s nuclear submarines rely on high-strength French steel for their hulls.” However, it is true that British Rail is a major customer of British Steel and buys around 100,000 tonnes of rail a year, and according to British Rail the firm plays “a major part in our plans to maintain, renew and upgrade the railway.”

But aside from all of this, he believes there is a more deep-rooted problem challenging British Steel and that is the need for a strategic shakeup. Read here his thoughts in full: What’s Next for British Steel, Britain’s Second-Largest Steelmaker, After Liquidation?

 

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