Cheaper energy, more cash and a bit of scrap: how to save British Steel

The government hastaken control of British Steel, so averting the closure within days of the UK’s last two blast furnaces. However, the takeover leaves a big question: what next?Steep losses at British Steel prompted its Chinese owner, Jingye, to decide last month to close its blast furnaces in Scunthorpe, Lincolnshire, which would end the production of “virgin” steel in the UK. The government stepped in with emergency legislation, passed in asingle daylast Saturday, to prevent that.The legislation has given the industry, workers and politicians time to work out how to build a doubly sustainable UK steel industry: one that makes money, while minimising carbon emissions.Electric arc furnacesThe future for Scunthorpe, if it is to have a future, will almost certainly be the electric arc furnace (EAF). Blast furnaces use coal to strip oxygen from iron ore to make iron, which is then refined into steel. The oxygen combines with carbon, eventually to be vented into the atmosphere as planet-heating carbon dioxide. By contrast,EAFs use electricity to melt down scrap steelsourced from old cars and demolished buildings.TheCelsa steelworks in Cardiff is one such factory, using high-voltage electrical currents that generate the 1,600C needed to turn scrap metal to liquid.That route to decarbonisation has already been chosen by Tata Steel at Port Talbot in south Wales: itclosed its two blast furnaceslast year to make way for electric arc replacements.Dan Marks, a research fellow who has studied steel at the Royal United Services Institute (Rusi), a defence thinktank, said the shift to electric arc furnaces was inevitable, but that successive governments had taken too long to act.“This was something that needed to be done in 2019,” said Marks. Back then it was clear that only a few years remained for the four operating blast furnaces at Port Talbot and Scunthorpe. “Nobody is going to invest in blast furnaces over a 25- to 30-year commitment,” he said.For Charlotte Brumpton-Childs, national officer for the GMB union, the priority is preserving good jobs for the workers of Scunthorpe, where she used to work. To that end, she said the government should consider electric arc furnaces but should also look at using methane or hydrogen in blast furnaces. That technology, which already exists, would cut emissions and would have the advantage from the unions’ point of view of minimising disruption for the workforce at Scunthorpe, although it appears to be a long shot.Energy pricesMuch lower carbon is a key attraction, but the other side of sustainability is financial.View image in fullscreenOne of the blast furnaces at British Steel’s steelworks site in Scunthorpe.Photograph: Darren Staples/APFrank Aaskov, director for energy and climate change policy at UK Steel, welcomed the government’s action on Scunthorpe. However, he said: “The UK steel industry needs an improved business framework, which requires significant changes to trade, energy, scrap, and procurement policies, which have held the industry back.”Ask pretty much any UK steel industry executive what they want from government and the answer is the same: cheaper energy. UK companies will pay about £68 a megawatt hour (MWh) for electricity this year, compared with £44 in France and £52 in Germany, according to the consultancy Baringa. Prices in Sweden, which has abundant cheap hydropower, can be less than a third those of the UK.The government has already committed to a big increase in renewables such as wind and solar to wean power generation off fossil gas. However, those promises may not provide much help for a few years yet.Liam Bates, the president of long products at the Sheffield-based stainless steelmaker Marcegaglia, said: “The real ask is to have green electricity at a price similar to the rest of Europe. It’s that simple.”It could be relatively simple: UK Steel, the industry lobby group, has argued that it could cost less than 50p a year for each householdto match France’s cheaper electricityfor steel. However, the subsidies suggested could force the government to pay more if gas prices surge, pushing up the price of electricity.Trade protectionismGovernment policy on the steel industry has been pulled between the desire for a free market and state control for most of the past century. Clement Attlee’s Labour government nationalised the steel industry in 1949, and then the Conservatives privatised it in 1951. Labour renationalised it in 1967 andMargaret Thatcher privatised it in 1988.Many people in the steel industry argue that it has never really been a free market. Too many governments tip the scales to support strategic industries. Now that the free market is in retreat around the world, thanks in part to Donald Trump’s tariffs, the steel industry insists thatprotectionism is necessaryfor the UK industry to survive.graphQuotas set in response to Trump’s first-term tariffs are now bigger than demand, leaving them out of date, said one senior UK steel executive. British companies allege that foreign rivals are dumping steel in the UK in their desperation to find a buyer. The industry wants the UK government to react to trade distortions sooner.“We need to be quicker,” said the executive. “We’re suffering a serious diversion of trade from EU and other countries, and prices no longer follow EU levels as has been the norm for many years.”Monumental investments …It is not all bad for the UK steel industry. Companies are relieved that the Labour government has stuck by a pledge to spend £2.5bn to help the industry, even as other parts of the budget, such as international aid and welfare spending, have been cut.How that money is spent is still up for grabs. The government could be tempted by eye-catching investments as monuments to their support.View image in fullscreenJonathan Reynolds visits the British Steel site in Scunthorpe on 15 April 2025.Photograph: Darren Staples/PAAlasdair McDiarmid, assistant general secretary at Community, another union representing steelworkers, called for two big projects backed by the UK government. The first would be a large plate mill that would be capable of making the steel needed for wind turbine towers needed for the government’s expansion of green energy.Only 2% of the steel used in British offshore wind projectsover the past five years was made in the UK, according to Lumen Energy & Environment, a consultancy.If that proportion does not rise then the UK will miss out on up to 2m tonnes of demand at the peak. The government is thought to be prepared to pay higher prices for British steel if it supports jobs in the UK, a consideration that will also inform the planned defence spending boom.The second big investment would be a factory making direct reduced iron (DRI). That would use methane and then, ideally, hydrogen made with clean electricity, to produce iron from iron ore, thereby almost eliminating the need for coal in virgin steel production.DRI plants already produce millions of tonnes a year using methane, with India the biggest producer of lumps of iron known as hot briquetted iron.The unions may be pushing at an open door. The government has made clear that it is seriously considering DRI. It has received a report on the technology by the Middlesbrough-based Materials Processing Institute, formerly a research arm of Tata Steel, and ministers have talked of DRI’s potential for several years.GraphicJonathan Reynolds, the business secretary, told parliament on Saturday: “I believe that the capacity for primary steel production is important. Direct reduced iron technology is of significant potential interest to us for the future.”What that would look like is unclear, however. None of the major steel companies in the UK has expressed a desire to run a DRI plant, despite government waving the possibility of huge subsidies. A person with knowledge of the government’s thinking said it was likely that a commercial partner would be sought to build a DRI plant, if recommended in a study by the Materials Processing Institute.… or scrap heap challenge?However, Rusi’s Marks argued that the focus on making virgin steel from iron ore is misplaced. Preserving British primary steelmaking is popular across the House of Commons, but Marks pointed out that in an extreme wartime scenario the UK would still be dependent on imports (of iron ore from Australia or Brazil).Marks said he believed that the ability to make different kinds of product in a pinch was more important: flat steels, or long products, aerospace-grade or speciality steels for nuclear submarine reactors. For instance, during the Covid-19 pandemic Tata Steel had to work flat out to produce food cans. Without that existing ability, there might have been shortages of some food products during the crisis.The government may have to pay more attention to the unglamorous world of scrap yards, and preventing the export of the valuable metal. The UK produces between 10m and 11m tonnes of scrap every year, most of which is exported to places such as Turkey to be sorted and recycled. That metal would provide more than enough to replace the UK’s 5.6m tonnes of steel produced in 2023.“Worrying about whether your steel is recycled or not is pointless,” said Marks. “The question is: is your supply secure?”