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British Steel was forced to close one of its two blast furnaces in Scunthorpe last year after using the wrong type of coal, in the latest sign of trouble engulfing the group's UK operations.
The controversy sparked initial fears among some government officials that British Steel might be trying to capitalize on its loss-making position, but ministers have since been reassured that the closure was an administrative error.
The announcement came as it emerged that British Steel had abandoned plans to bring steelmaking back to Teesside, as part of government-sponsored reforms of the company's operations to greener methods of production.
The first plans put forward by the company, owned by China's Jingye, were to build one power station in Scunthorpe and one in Teesside, but people familiar with the situation confirmed that the intention was now to build two in the Lincolnshire area.
Lord Ben Houchen, the Conservative mayor of Tees Valley, said the Labor government had rejected the idea and instead favored cramming Britain's new power plant into its existing Scunthorpe plant.
“It's disappointing,” Houchen told the Financial Times. “Obviously there is collusion by the Labor government and the unions not to come to Teesside.”
Jonathan Reynolds Partners, business secretary, said the future construction of the business was a business decision for British Steel, but noted that Teesside was proving to be an attractive location for inward investment.
The company's decision to scrap plans to build a “green” facility on Teesside and one of its main operations in Scunthorpe was first reported by the Sunday Times.
Problems at British Steel's “Queen Anne” furnace in Scunthorpe emerged last year after the company began importing coking coal after shutting down the coke ovens that feed its two plants in 2023.
The engineers accidentally found coke that was a mixture of both “low quality and low quality”, which led to the plant's failure, according to several people familiar with the situation.
The ban sparked initial concerns in the government that British Steel may have tried to sabotage its plant to justify the ban on its loss-making UK operation, according to people familiar with the matter.
But one government insider said Reynolds believed it was down to “incompetence and cost-cutting” rather than any nefarious intent. Engineers do not fully understand the complexity of the plant that needs to be blown up, said a second person familiar with the situation.
Talks between the government and the company regarding a support package to restructure its operations are ongoing. British Steel's latest accounts, filed last year, showed that Jingye injected £100mn of equity into the business by October 2023.
British Steel has made it clear that it is eyeing more than the £500m it has agreed to for Tata Steel's Port Talbot plant in Wales to build an electric furnace. The government has said it will invest £3bn, including Tata's £500mnfor the British steel industry over the next decade.
Union representatives say their priority is to keep the blast furnace open as long as possible. Arc power plants are carbon-intensive but employ fewer people and switching to greener methods of steelmaking could put as many as half of the 4,500 workers at risk.
Alasdair McDiarmid, assistant general secretary of the Civil Society, whose members include steel workers, said “it is imperative that the two blast furnaces are kept in Scunthorpe to facilitate the transition to new technology in the area”.
“This is a priority for us as a union and is at the heart of the proposals we have presented to Jingye, and we are now awaiting the company's response.”
British Steel declined to comment on the reasons why the Queen Anne plant went down but said both of its plants are now operational. It continued to buy “materials for metal support and metal fabrication”.
The company, it added, remained in “ongoing discussions with the government about our decarbonisation plans and the future performance of our UK business”. Although progress was ongoing, “no final decisions have been made,” it said.