China’s Jingye Steel has been looking closely at how to turn the current British Steel operation into a profitable supplier focussed on the local market, a source close to the takeover tells Kallanish. The plant requires significant investment and regulatory assurances but this cannot happen until the deal is finalised, he adds.
British Steel has not been profitable because of a lack of investment and inefficient operations, the source explains. As operations at the plant worsened over several years, it was forced to reduce production, but that only served to increase unit costs. Utilisation rates at its rolling mills are low, and some lines are not being operated at all. The workforce at British Steel however is very knowledgeable however, and could do much more with a better plant, the source suggests.
Details of Jingye’s strategy are still being finalised, and will ultimately depend on the final deal for the plant being concluded. The overall strategy however will be influenced first by the strength of the existing products. The goal would be to lift utilisation in order to reduce unit costs. The additional volume would be primarily to serve the domestic market, replacing imports from Europe. That would depend on full utilisation of rolling lines and, to be competitive, would require some investment upstream.
Moving forward, Jingye is also exploring further development of the business. This could include the addition of new product lines, and a possible significant investment in British Steel’s Teeside plant.
All of Jingye’s plans will depend on the successful conclusion of the deal to buy British Steel however. The source notes that there remain a number of hurdles, including regulatory issue and government approvals, details around the procurement of raw materials and electricity, and possible rival bids.