Could British Steel be on the brink of liquidation?
British Steel is at risk of dropping into administration, following stagnant discussions with the Conservative Government for a possible 30-million-pound subsidy, which would jeopardize around 5,000 jobs and have knock-on effects on the supply chain.
One of the major manufacturers of British steel is potentially on the brink of shattering after negotiations with the Secretary of State for Business, Greg Clark, remain up in the air. Earnest and Young, a multinational professional services business with its headquarters in London, is said to be the main runner for administration should British Steel collapse.
Greybull Capital, a private investment company, is the owner of British Steel and has been attempting to secure government funding to avoid both bankruptcy and from going under. British Steel investors and Greybull Capital have both settled to fund the company with a further 30 million pounds but have turned towards the government for additional funding.
Financial Times’ Alan Livsey, a Board director and chair of the Structured Learning Committee discusses the downfall of British Steel and its current fate:
“British Steel is in trouble, it’s been a marginal producer of steel for some time. Europe is not a great place to produce steel, there are other steel makers in Europe who either do a better job or have managed to specialize for whatever reason British Steel’s costs have been too high. Greybull have some history of trying to bailout other UK businesses with not very much success.”
“Why are we here again talking about bailouts and Greybull help for British Steel? British Steel under its previous owners, Tata Steel, has used effectively the emissions trading system of carbon credit trading in the EU, where credits are given to various industries particularly the polluting ones to offset their emissions. If they have too many sometimes these companies sell those. It turned out that British Steel was using this quite a bit in the last few years, and they were selling credits, taking the money and then when new credits were given to them at the beginning of the new fiscal year they would cover their shorts; this was a repeated practice.”
“So, what went wrong was that last year these carbon credits went up in price a lot. They went from as low as 5 euros per ton of carbon to 25 most recently. That made that short very difficult to cover and the worst news came for British Steel when the EU decided as Britain is leaving the EU, it is not entitled to any more of these credits.”
Click here to watch Alan Livsey’s full report on the Financial Times website.
British Steel has said that the cause of its financial difficulties, emanates from the confusion that Brexit is creating. Furthermore, Parliament has the stress of the European elections on May 23rd to deal with. Reports indicate that orders of steel at British Steel in Scunthorpe have dropped by a quarter due to the unpredictability and high volatility of Brexit. If Britain leaves the European Union on WTO terms imports of British Steel into the Eurozone would have a 20 percent tax imposed upon them.
British Steel has a workforce of around 5,000 people, with over 3,000 employees working at its plant in Scunthorpe and is the main source of backing for its supply chain. The steel plant in Scunthorpe is one of the last blast furnace steelworks in Britain that uses raw materials to produce steel.
With Greybull Capital as its owner British Steel had a profitable 2018, however, following a weakening pound, increased energy prices and the difficult Brexit situation, the company has been brought to its knees.
British Steel finds itself in trouble just 14 days after it was given a 120-million-pound emergency fund by the UK’s Government to pay for an EU charge relating to its greenhouse gas emissions. The Labour party has raised its concerns with the future of British Steel, hinting at the necessity to formulate a contingency plan so that in the event that the steel manufacturer collapses it can be nationalized.
Voicing his Party’s concerns with the fate of British Steel and the consequences it would have on the livelihoods of thousands of British workers in Scunthorpe and across its supply chain, Jeremy Corbyn said:
“If an agreement cannot be struck with British Steel, the government must act to take a public stake in the company to secure the long term future of the steelworks and protect peoples’ livelihoods and communities.”
Click here to read the full BBC report.
Steve Turner, the Assistant General Secretary of the UK’s biggest trade union, Unite commented on the British Steel situation:
“While Unite is in continuing dialogue with British Steel and the UK government, we are very clear that if a deal cannot be struck to secure the long-term future of the steelmaker under private ownership, that the government must bring it under public control in the national interest.”
“British Steel’s success is key to any future UK industrial strategy. It is a strategically important business which supplies other UK steelmakers with product and provides 95 per cent of UK’s rail tracks.”
“Sustaining over 4,000 jobs across the UK and a further 20,000 in the supply chain, it would be an economic catastrophe if the worst were to happen and government was to allow British Steel to collapse. It is a national asset supporting UK Plc that cannot simply be left to the market.”
“While Brexit uncertainty has undoubtedly hit the steelmaker’s order book and high iron ore prices have increased operating costs, many steelworkers will be questioning how Greybull could find the finance to fund the acquisition of a French steel works last week while pushing British Steel to the brink of collapse.”
Click here to read the full report.
The union Community’s Operations Director, Alasdair McDiarmid has warned that should British Steel liquidate, in addition to the damage it would cause to the UK’s steel industry, the expenses that would result from the deconstruction of the industrial plants could then heavily burden the taxpayer.
Britain’s manufacturing industries have been knocked by the biggest downturn since 2016. According to a monthly Industrial Trends Survey by the Confederation of British Industry (CBI), the survey of nearly 280 manufacturing companies indicate that output expansion was mainly influenced by the following sectors: chemical, food and drink, and mechanical engineering. The sectors which hindered economic growth the most were the automotive and clothing sectors. The order books are also showing signs of decline with orders reaching the lowest levels since 2016. The forecast for inflation is also flatlining for the next 3 months.
The Deputy Chief Economist at CBI, Anna Leach suggested:
“These results provide further evidence that manufacturers have been stockpiling at a rapid pace as part of their Brexit contingency plans. When combined with a sharp decline in order books, it’s clear why manufacturing firms are so keen to see a swift end to the current Brexit impasse.
“With investment down, stockpiling up, and the threat of a no-deal ever present, we desperately need parliament to thrash out a viable deal in the national interest. Where the cross-party talks failed, Parliament must succeed, or continued economic paralysis will see us hurtle ever closer to disaster.”
To read the full CBI article click here.
During a period of high tensions, British Steel is staring the possibility of bankruptcy in the face, with around 5,000 jobs at risk and an additional 20,000 within its supply chain. The warning coming from the CBI says that gathering reserves and stockpiling is futile when compared to the slump in manufacturing demand due to the uncertainty surrounding Brexit.
The downturn of the manufacturing sector’s order books come at a time when sterling maintained its decline in value in terms of the US dollar and euro since May. Some businesses have profited from the drop in the value of the pound as it gives them the opportunity to sell outside the UK at cheaper costs. However, the price of raw materials imported to the UK has risen countering any benefits of selling goods at lower prices which has compelled various companies into lowering costs farther.
Risk Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79.28% of retail investor accounts lose money when trading CFDs with this provider. The information contained in this market review should not be construed in any way, as containing investment advice and/or a suggestion and/or solicitation for any trading activity and financial transaction. There is no guarantee and/or prediction of future performance. EuropeFX, its affiliates, agents, directors or employees do not guarantee the accuracy and validity of any information or data made available and assume no liability as to any loss arising from any investment based on the same. Trading Forex/CFD’s carries a high level of risk and can result in the loss of your whole investment. Forex/CFD’s are leveraged products and therefore Forex/CFD’s trading may not be appropriate for all investors. It is recommended that you do not invest more money than you can afford to lose to avoid significant financial problems in the case of losses. Please make sure you define the maximum risk acceptable for yourself.