Owner British Steel is preparing to bring forward furnace closures

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The Chinese owner of British Steel is preparing to unveil plans to close Lincolnshire furnaces as talks with the government over a £500m state aid package to switch to greener forms of production have stalled.

Jingye’s closure, which would put thousands of jobs at British Steel’s flagship Scunthorpe site at risk and leave Britain unable to produce steel from scratch, is expected to take place before Christmas, they said people familiar with the discussions.

Unions have previously expressed fears that around half of the company’s 4,500-strong workforce could be laid off in such a scenario.

A person close to the talks said a tipping point would come in mid-September and there were signs the ministers and Jingye had not reached an agreement.

“The likely result is that the blast furnaces at Scunthorpe will close with thousands of direct jobs. . . to go before Christmas,” he said.

Meanwhile, ministers are closing in on a revised taxpayer-backed deal with Britain’s biggest producer Tata Steel that will keep steel production via electric arc furnaces at Port Talbot in south Wales, albeit with job losses of work, according to people familiar with the discussions. An announcement could come as early as next week, the people said.

Closing the Scunthorpe furnaces without a compromise in place on how to switch to electric arc furnaces would be a blow to the government’s promise that the decarbonisation of Britain’s steel industry will not lead to deindustrialisation.

Labor has said it will make £2.5bn available in potential support for industry as it decarbonises. That would be on top of the £500m already given to Tata by the previous Tory government.

China’s Jingye has been in talks with the government for more than two years about taxpayer aid to help British Steel, the second-biggest producer, switch to greener forms of production at Scunthorpe.

The company – a key supplier to UK rail – proposed last year to keep its two blast furnaces online while it builds two less intense electric arc furnaces as part of an application for direct investment support from over £500 million.

As part of its proposal to close the furnaces early, British Steel proposed the option of importing semi-finished steel from overseas, including China, to continue supplying its main rail customers while the two electric arc furnaces were built, a process that could take three years.

Such a move would require the approval of rail authorities to ensure adequate safety standards are met. But industry and Whitehall figures said the government wanted to reject any such request.

Colin Richardson, head of steel at prices reporting agency Argus Media, said “the sad reality remains, companies cannot produce steel profitably via the blast furnace route in the UK”.

British Steel previously said it was losing more than £1m a day and in its 2021 accounts, which were only completed in July this year, said it had made “significant losses” in 2022, 2023 and 2024 to now.

The company told the Financial Times it was in “ongoing discussions” with the government about the future of its UK operations and that “while progress continues, no final decisions have been made”.

Meanwhile, unions are closing in on a deal with Tata on an increased layoff package and investment commitments, paving the way for a deal between the company and the government, people close to the talks have confirmed.

Under Tata’s deal with the previous Tory government, it would invest £750m in green steel production through an electric arc furnace, triggering the loss of up to 2,800 jobs but keeping steelmaking in Wales.

This agreement was not ratified, however, before the general election in July. The new agreement is expected to limit compulsory redundancies.

Tata said it continued to “work closely with the UK government to finalize discussions on the grant funding agreement”.

The government on Thursday highlighted remarks by industry minister Sarah Jones, who told MPs the government was “clear that decarbonisation does not have to mean deindustrialisation”.

Talks about Port Talbot “have moved forward in recent weeks”, Jones said, adding that ministers continued to hold talks with British Steel “on a number of similar packages”.