The collapse of Greensill tests the courage of the Yorkshire steel town

Life is back to normal for Scott Jackson this week. Jackson, along with many of his colleagues, returned to work at the Sanjeev Gupta steel plant in Rotherham.

Production at the Liberty Steel plant in South Yorkshire has been intermittent since the middle of last month, with many of its 600-plus employees on leave. On Tuesday, however, one of the site’s two giant electric arc furnaces was back in operation, a towering gray beast spewing flames and sparks as it melted scrap metal at over 1,500 ° C.

For Jackson, the director of the company’s smelting shop, and his fellow metallurgists, the return could be short-lived. Liberty Steel’s future hangs in the balance after the collapse of Greensill Capital, the main lender to its parent company GFG Alliance, the loose set of companies that make up Gupta’s corporate empire.

Despite a strong order book, the Rotherham plant lacks working capital, with the current production run ending in about a fortnight and no certainty on what will happen next. “We are currently living in two-week blocks. It’s really tough, ”Jackson said.

Rotherham’s liquidity crunch is also being felt at its neighboring Stocksbridge plant. The operations of the two facilities were affected by the slowdown induced by Covid in the aerospace and automotive sectors, whose companies are customers of its special steels.

But the situation worsened with the disappearance of Greensill, who had loaned GFG up to $ 5 billion when it went bankrupt last month.

The businessman’s troubles have also led to questions on the broader question of the future of the UK steel industry, revealing the lack of a proper government strategy to deal with the sector.

Gupta has previously been hailed as the ‘savior of steel’ for his rescue of metal factories around the world © Simon Dawson / Bloomberg

For Gupta, the focus is on finding alternative long-term funding to stabilize his group, but that could prove difficult amid growing unease over his business empire and expansion with the help of Greensill, who has provided guaranteed upfront financing on its clients’ invoices.

Some investors have taken legal action to liquidate parts of the businessman’s empire, while the government’s recent rejection of its call for more than £ 170million to help with working capital of its UK factories has heightened fears about their viability.

However, Liberty workers said Gupta, who once hailed the ‘savior of steel’ for his rescue of Wales’ metal factories in Australia, had been a good employer.

Clive Royston, who works in Stocksbridge and is a member of the community union’s national executive committee, said the mogul has never missed a payday and has never been in arrears.

“You have to take his word for it,” added Chris Williamson, another Community member who works in Rotherham.

Jackson insisted the plant was a good business, noting that it was “heading for profitability” before the pandemic demand hit and the fallout from the Greensill collapse.

The stakes are high with thousands of jobs at stake. GFG employs 35,000 people worldwide, including nearly 5,000 in the UK in 12 factories.

In Yorkshire, 1,600 jobs are at risk at three factories – Rotherham, Stocksbridge and Brinsworth. Local politicians and business leaders have warned their loss will ravage the region. The company, said Chris Read, head of the Rotherham Council, provided “skilled, well-paying jobs like there aren’t in the millions.”

“It’s important economically. That’s what Rotherham does and the size of the site, the footprint it has in the community ”are all issues to consider, he added.

Andrew Denniff, managing director of the Barnsley & Rotherham Chamber of Commerce, believes that the change of factories to focus on the production of specialty products means that “it should have a future as a highly skilled and top manufacturing industry. range “.

Although only 0.1% of UK economic output, the steel industry is an important sector as it provides highly skilled manufacturing jobs, with average wages above the national average and products destined for industries. strategic, from defense and aerospace to transport and infrastructure.

Liberty Steel's Rotherham Plant
Liberty Steel’s Rotherham plant. Ministers have drawn up contingency plans to take over management of the group’s factories in the event of a collapse © Jason Alden / Bloomberg

The government insists on its commitment to the industry and has hinted that it is ready to support the operations of Liberty Steel, if not Gupta himself. Boris Johnson last week described British steel as a “very important national asset”.

“It would be crazy if we didn’t use this post-Brexit moment to use the flexibility we have to buy British steel,” the Prime Minister said.

But industry stakeholders say, despite the warm words, Johnson has no plan, which is absolutely necessary if the UK steel industry is to go ‘green’ and cut emissions to ‘near zero. By 2035, as suggested by the UK Climate Change Committee. .

There is “an industrial policy issue here,” said Chris McDonald of the Materials Processing Institute, a steel research group. The government has said it recognizes the importance of the steel industry. But to make green steel a reality, it would take £ 6-7bn of investment in the sites themselves, in addition to supporting infrastructure, McDonald said.

“Where is this going to come from?

This is an issue that officials at BEIS, the UK Department for Affairs, are grappling with. Business secretary Kwasi Kwarteng last month re-established the UK Steel Council, allowing government, industry and unions to jointly develop a plan for the sector.

A viable industry will also require long overdue measures from ministers to deal with high energy costs and commercial tariffs in order to create a level playing field with foreign competitors.

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Meanwhile, there are doubts about what to do about Liberty Steel. The company is in talks with suppliers and customers, including Rolls-Royce, to improve near-term cash flow. The ministers drew up contingency plans to resume operation of plants in the event of a collapse.

The Treasury similarly backed British Steel in 2019 before it was finally sold to a Chinese group, but the approach cost the taxpayer nearly £ 600million and resulted in losses in the supply chain. .

Sarah Champion, MP for Rotherham, said if the government wants to intervene “it has to do it before [the steel operations] become insolvent ”.

McDonald of the Materials Processing Institute agreed, saying the government must take a “more assertive approach” and intervene early or risk causing many losses “at the door of the supply chain.”

Gupta promised last week that no UK factories would close “under my watch”. The longer the uncertainty persists, however, the more these words will begin to ring hollow.

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