British Steel uncertainty triggers supply contingencies

British Steel client UK-based Liberty Steel is taking measures to avoid supply shortages as the government pledges to do "whatever is in [its] power" to support the UK steel industry, business minister Andrew Stephenson today told the House of Commons, the country's lower house of parliament.

British Steel — owned by private equity firm Greybull Capital — has faced public financial difficulties since mid-April, when it sought a £120mn ($153mn) loan from the government to settle carbon liabilities with the EU.

It sought a further £75mn last week, citing "Brexit-related issues" for the shortfall in liquidity. The company said European buyers are reticent to buy UK steel because of uncertainty over the tariff and regulatory environment after Britain's exit from the EU. Under WTO rules, there are no tariffs on steel shipments between developed nations, although the UK could look to mirror the European safeguard should it leave the EU.

British Steel could fall into receivership as early as tomorrow, according to market participants and media reports.

"The British Steel Group has faced various trading challenges recently," the company said. "In response to this, we have been working closely with our stakeholders to consider the different funding options available. These negotiations have not concluded and we continue to work with all parties to achieve an outcome that secures the future success of British Steel."

Liberty Steel has already been linked to British Steel's Scunthorpe site should it fall into administration. But this would be unlikely unless the government provides a major debt package, and if it does offer one it would be likely to do so to the current owners, according to market participants.

British Steel may need to rationalise its Teesside and Skinningrove rolling plants, and its distribution businesses, to become competitive, market participants said.

Liberty Steel has options to buy slab from third party suppliers if British Steel supply is disrupted. Liberty buys most slab for its Scottish plate mills and some for its Newport hot-rolled coil mill from British Steel's Scunthorpe site. It also ships slab from its Australian site to the Newport line.

Liberty is ramping up its Rotherham plant more quickly than expected to ensure billet supply to its merchant bar business, which also buys from British Steel. "We are taking all necessary measures to protect ourselves from a potential shortage of billet supply," the company said.

After British Steel's negotiations with the government, its request for a £75mn loan was reportedly revised down to £30mn as Greybull and other lenders agreed to inject more of their own capital into the company. The Department of Business, Energy and Industrial Strategy approved the original carbon credits loan but declined to comment.