British Steel on verge of administration: Impact on Network Rail?

[3973EXL]

I believe the steel is produced in Scunthorpe then sent to France for rolling, before returning to the UK if for Network Rail or another domestic customer. There was a rolling mill at Workington a few years ago, which closed because (I think) it wasn't suitable for the products that are needed nowadays.

Workington was able to roll rail at a maximum length of 72m. However, due to site constraints, next to the sea, it was cut to 36m. There was also a welding plant at Workington which welded strings to the 216m required by Network Rail. Rail was also sent to Castleton and the Network Rail plant at Eastleigh for welding to 216m.

Eastleigh also received Austrian & Italian by rail, rolled in 108m lengths. 216m length rail with one weld. For this to be matched, a new rolling mill was built at Scunthorpe to roll 108m and weld to 216m.
Scunthorpe produces the steel and rolls rails for use in this country and for export. Steel is also sent to Hayange in France for rolling and use in Europe.
108m is also sent to Eastleigh for Network Rail to weld.

Scunthorpe rail is marked MSM on the rail web under TATA and now British Steel.

 

[jagardner1984]

There is an old saying that in a recession or times of economic uncertainty, the best action a government can take is to pay one group of people to dig holes and another to fill them in. The economic consequences of watching what’s happening will cost the taxpayer far more than the proposed loan / nationalisation.

Before we consider the destruction of lives and communities made up of our friends, families and fellow citizens.

You’d have thought the 80s would have taught us something.

 

[pdeaves]

Scunthorpe rail is marked MSM on the rail web under TATA and now British Steel.

What does MSM mean here, please?

 

[Ploughman]

Is the old CEDG (Civil Engineers Design Group) still a part of B Steel?
Or was it sold off earlier?

 

[Ken H]

They could nationalise it.

not while we are in single market and customs union

 

[3973EXL]

What does MSM mean here, please?

"Medium Section Mill" I believe.

 

[Ken H]

No-one has mentioned the amount of paid for rail traffic the Steel industry generates. I would have thought some of that traffic would be at risk.
All depends what the administrators manage to hive off, I suppose.

 

[Meerkat]

If the steel is imported it would be more viable for rail transport than coming from Scunthorpe ??

 

[edwin_m]

Scunthorpe produces the steel and rolls rails for use in this country and for export. Steel is also sent to Hayange in France for rolling and use in Europe.
108m is also sent to Eastleigh for Network Rail to weld.

Thanks for the correction. Original post deleted.

 

[pdeaves]

Is the old CEDG (Civil Engineers Design Group) still a part of B Steel?
Or was it sold off earlier?

Still under 'same' ownership (though now under Tata), see https://beta.companieshouse.gov.uk/company/03033290

If I understand correctly, British Steel became Corus then Tata, then the steel making part was hived off as [new] British Steel; the CEDG bit was not hived off.

 

[HSTEd]

It is worth noting that constructing a massive zero carbon infrastructure will consume astronomical quantities of steel.

Nuclear power plants, wind turbines, bridges, railways and so on.

The list goes on and on.

 

[LNW-GW Joint]

Statement from Network Rail:

We have been working closely with British Steel and colleagues across government for many weeks. We have done what we can to help ease the company’s financial difficulties. We have improved our order book with the company – increasing rail production volumes, bringing orders forward and committing to a long term schedule – as well as offering immediate payment to ease the pressure on cash flow. However we have today been officially informed that British Steel has entered insolvency proceedings.
British Steel is a major supplier to Network Rail, providing around 100,000 tonnes of rail a year and playing a major part in our plans to maintain, renew and upgrade the railway.
We are confident that we remain able to carry out critical work on the railway in the coming months and beyond. Longer term we have plans in place so that we can continue to deliver the reliable railway millions of people depend on every day.
We understand this is a very worrying time for British Steel employees and we will work with the liquidator and continue to offer our support

https://www.networkrail.co.uk/british-steel-insolvency/

 

[Chester1]

There is a decent chance of the administrators selling the business, if only to the government and for £1. The Pension Protection Fund is allowed to take up to 30% stakes in businesses when they won't receive enough money from administrators to cover liabilities. If a huge chunk of the debt is written off (and the pension transferred to the PPF) then it is a viable business that recently made a profit. It could be liquidated but it also could be sold out of administration.

 

[Maurice3000]

not while we are in single market and customs union

And while we're under WTO rules. If other WTO members can make a case that the UK is subsidising an industry in a breach of WTO agreements they can take punitive measures against the UK.

This all means that it will never be a simple as the UK government just buying British Steel Ltd. and continue running it as before. It doesn't help that British Steel did not go into administration but actually into the much more severe involuntary liquidation. This means it wasn't just a temporary 'hiccup' that caused them to go under but more structural issues. It's hard enough being a steel producer at the moment (unless you're Chinese), losing a lot of customers from the rest of Europe makes it even harder.

I am not a trade lawyer but, instead of nationalisation, the UK might be able to something along the lines of making sure that it buys as much steel as it can from a restarted British Steel. This is not that easy if 95% of NR rail is already coming from there and tendering rules might get in the way but there might be some loophole or shady business they could have attempted.

I have lost all faith and trust in the current government but in this particular case I actually feel that they really tried what they could. Particularly as this is obviously the worst PR imaginable during the current crisis and the day before the elections. My sense is that they went in and wanted to do (almost) whatever it takes, until they saw the books and realised it was beyond repair. I think that when they discovered that owners Greybull had sold the company's carbon credits to make money (at what later turned out to be around the bottom of the market) and then had to borrow 120 million pounds from the government a few months ago to buy those carbon credits back, they realised the books could never be balanced. I suspect there is no love lost between the government and Greybull at the moment.

 

[Photohunter71]

Maybe point the finger at the current owners handling of the company, then see what Greybull have mismanaged in the past before blaming markets, brexit and wto etc? It's well documented , Monarch airlines springs to mind of such mismanagement.

 

[Indigo Soup]

Maybe point the finger at the current owners handling of the company, then see what Greybull have mismanaged in the past before blaming markets, brexit and wto etc? It's well documented , Monarch airlines springs to mind of such mismanagement.

It's also worth bearing in mind that Tata sold the Scunthorpe works to Greybull for £1. That's not the sale of a profitable asset, that's offloading an uneconomic asset without the bad publicity of having to close it yourself.

It was on Greybull to find a way to make Scunthorpe profitable. Evidently they failed to do so. It's likely that nobody else could have done so either, since if it was desirable as a going concern it would have sold for more than £1. Make no mistake, the 2016 sale wasn't saving the plant - it was just putting off its' demise unless someone came out with a brilliant idea.

Of course, losing more manufacturing industry is to be regretted. It's a big hit for the affected community, and I'm not at all comfortable about the UK becoming ever more dependent on imported goods. I just don't see how to avoid it without imposing ill-advised subsidies or import controls.

 

[Ken H]

It's also worth bearing in mind that Tata sold the Scunthorpe works to Greybull for £1. That's not the sale of a profitable asset, that's offloading an uneconomic asset without the bad publicity of having to close it yourself.

It was on Greybull to find a way to make Scunthorpe profitable. Evidently they failed to do so. It's likely that nobody else could have done so either, since if it was desirable as a going concern it would have sold for more than £1. Make no mistake, the 2016 sale wasn't saving the plant - it was just putting off its' demise unless someone came out with a brilliant idea.

Of course, losing more manufacturing industry is to be regretted. It's a big hit for the affected community, and I'm not at all comfortable about the UK becoming ever more dependent on imported goods. I just don't see how to avoid it without imposing ill-advised subsidies or import controls.

we actually dont know what parts can be sold off as profitable and which bits are basket cases. We will have to see what the insolvency people can salvage.

The other worry, how much are pension funds exposed to this? (Not just steel workers pension, but anybodies private pension may be exposed)

 

[JamesT]

we actually dont know what parts can be sold off as profitable and which bits are basket cases. We will have to see what the insolvency people can salvage.

The other worry, how much are pension funds exposed to this? (Not just steel workers pension, but anybodies private pension may be exposed)

I don't believe British Steel's shares were publicly traded, so there wouldn't be any direct effect from that POV. The pension fund is separate so is unaffected by the company going into insolvency (though obviously nobody will be accruing any further benefits in the same way as if you just left the company).

 

[hwl]

we actually dont know what parts can be sold off as profitable and which bits are basket cases. We will have to see what the insolvency people can salvage.

The other worry, how much are pension funds exposed to this? (Not just steel workers pension, but anybodies private pension may be exposed)

I'd suggest most of the issue is around cash flow with some of this due to lack of sales volume as export customer orders have collapsed. (The carbon credits issues goes back to Tata days so drawing an end to some of that creativity might be a good thing)
During previous grim times at Scunthorpe one of the two blast furnace has been mothballed which I'd suggest might happen again this time to reduce production. Everything else can be scaled back more easily but not good for jobs.

 

[edwin_m]

I'd suggest most of the issue is around cash flow with some of this due to lack of sales volume as export customer orders have collapsed. (The carbon credits issues goes back to Tata days so drawing an end to some of that creativity might be a good thing)
During previous grim times at Scunthorpe one of the two blast furnace has been mothballed which I'd suggest might happen again this time to reduce production. Everything else can be scaled back more easily but not good for jobs.

The problem is the lack of orders not just cash flow. There is general overcapacity in the steel industry and while BS appeared to be doing reasonably well in its first year or so it has now fallen into difficulties.

The overcapacity means that the least competitive firms are likely to fail, and Brexit without a trade deal essentially means a British firm can't compete for sales in the EU against firms within the EU that have exactly the same cost base. That applies to a Farage-style departure without a deal, or to leaving with some deal but failing to agree a long-term trade agreement with the EU within the transition period. In the meantime the uncertainty about what the tariffs will be when an order is fulfilled means BS probably can't quote competitive prices and the uncertainty puts customers off doing business with them.

As to sales outside the EU, good luck competing with the Chinese... and the domestic market alone is probably too small to sustain a specialist steel supplier.

 

[w1bbl3]

Steel section which is what BS made is a really long leadtime item for "mill" orders, lets assume you are a steel stockholder in france you would be looking to place your volume orders two quarters in advance of delivery. The problem for BS is without knowing what type of trade deal we're getting they can't quote a fixed price to the stockholder unless BS take the price/tariff risk. When you consider the kind of monitory values for just a months worth of production the risk becomes untenable.

The secondary issue is UK stockholders deciding to de-risk and buy volume outside of the UK which is really what has sunk them...

 

[HSTEd]

And while we're under WTO rules. If other WTO members can make a case that the UK is subsidising an industry in a breach of WTO agreements they can take punitive measures against the UK.

WTO rules are considerably more lenient however.
The steelworks could continue indefinitely running a revenue loss to maintain capability for defence and national security applications, for example.

 

[Daniel Pyke]

What does MSM mean here, please?

British Steel rails are currently branded
BS SC - British Steel Scunthorpe (UK) or BS HY - British Steel Hayange (France).
They aren't branded MSM any more as its name changed from MSM (Medium Section Mill) to SRSM (Scunthorpe Rail and Section Mill) many years ago.

 

[nidave]

Yet the UK (including Farrage) voted against any tarrifs for non EU steel wich could have helped British Steel - the UK is its own worst enemy when it comes to trying to sort its own problems.

From 2016

Nigel Farage accused of hypocrisy over vote against EU law that could have helped British steel
The Ukip leader claimed this week that EU membership was a major factor behind the 'massacre' of Britain’s manufacturing sector
Nigel Farage has been accused of a “staggering level of hypocrisy” over Britain’s steel crisis after it has emerged he and other Ukip MEPs voted against an EU move that it is claimed could have helped protect the steel industry from cheap Chinese imports.

https://www.independent.co.uk/news/...could-have-helped-british-steel-a6964476.html

 

[LNW-GW Joint]

The BBC is reporting that Network Rail has put in an indicative bid for the parts of British Steel it is dependent on.
It also says its preference is to deal with a new owner for the entire business, so it's a last resort kind of bid.
Bids are due to be analysed in the next couple of weeks to decide the future of the business.
https://www.bbc.co.uk/news/business-48816458

Network Rail is looking to buy part of British Steel, as bidders have until the end of Sunday to put in offers for all or part of the troubled firm.
The railway infrastructure company has bid for British Steel's rail services business.
State-owned Network Rail wants to take over the division responsible for the welding, finishing and storing of rails for the UK's train network

 

[Taunton]

It is worth noting that constructing a massive zero carbon infrastructure will consume astronomical quantities of steel..

It appears that the relentless pursuit of zero carbon is responsible in significant part for the bankruptcy of a plant producing railway rails.

https://www.bbc.co.uk/news/business-48816458

It was also hit by an EU decision to suspend access to free carbon permits until a Brexit withdrawal deal can be hammered out.

British Steel was given a £100m loan from the government to pay off an EU carbon bill in April.

Quite why they would be stuck with a £100m bill into the Brussels coffers passes all comprehension.

 

[LNW-GW Joint]

I think BS planned to use/buy EU carbon credits for its daily operations, but have run into the Brexit brick wall.
We have been excluded from using future credits because we are not part of the next EU budget round (similar to losing access to EU databases).
But if you believe Messrs Farage and Johnson, it all come out of the EU subscriptions we will not be paying.
I think the £100m is the bill to date, which BS couldn't afford to pay (in April).
Steel, like coal, is inherently a dirty business. (Where there's muck...)

 

[WatcherZero]

Yeah its a bid of last resort so it isnt shuttered if no-one else wants it.

 

[Dr_Paul]

Breaking News: 'Network Rail has made a bid for parts of British Steel ahead of a deadline for offers for the company, which collapsed into liquidation last month putting 4,500 jobs at risk.' More here.

 

[TrainBoy98]

Seems like a smart idea on the face of it, BS providing most (did I read correctly it was 95%?) of steel/rails for Network Rail. But surely it's just going to add to NRs debt/deficit, at a time it's trying to save money and making cutbacks to numerous schemes?