Greensill collapse tests Yorkshire steel town’s mettle

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

Production at the Liberty Steel factory in South Yorkshire has been intermittent since the middle of last month, with many of its 600-plus workforce on furlough. On Tuesday, however, one of the site’s two giant electric arc furnaces was back in action, a grey hulking beast spewing out flames and sparks as it melted scrap metal at more than 1,500C.

For Jackson, the company’s melting shop manager, and his fellow steelworkers, the return might prove shortlived. The future of Liberty Steel hangs in the balance after the collapse of Greensill Capital, the main lender to its parent company GFG Alliance, the loose collection of businesses that make up Gupta’s corporate empire.

Despite a strong order book, the Rotherham plant is short of working capital with the current production run ending in about a fortnight and no certainty over what happens next. “We’re currently living in two-week blocks. It’s really challenging,” Jackson said.

Rotherham’s cash squeeze is being felt at its neighbouring plant in Stocksbridge, too. Operations at both facilities were hit by the Covid-induced downturn in the aerospace and automotive sectors whose companies are customers of its speciality steel.

But the situation has become more acute with the demise of Greensill, which had lent as much as $5bn to GFG by the time it fell into insolvency last month.

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

For Gupta, the focus is on raising alternative long-term finance to stabilise his group, but that could prove difficult amid growing unease about his business empire and its expansion using Greensill, which provided upfront funding secured on its customers’ invoices.

Some investors have begun legal action to have parts of the businessman’s empire wound up, while the government’s recent rejection of his plea for more than £170m to help with working capital at his British plants has compounded fears over their viability.

However, workers at Liberty said Gupta, once hailed the “saviour of steel” for his rescue of metals plants from Wales to Australia, had been a good employer.

Clive Royston, who works at Stocksbridge and is a member of the Community union’s national executive committee, said the tycoon had never missed a payday and never been late in paying.

“You have to take him at his word,” added Chris Williamson, another member of Community who works at Rotherham.

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

The stakes are high with thousands of jobs on the line. GFG employs 35,000 people worldwide, including close to 5,000 in the UK at 12 plants.

In Yorkshire, 1,600 jobs are at risk at three plants — Rotherham, Stocksbridge and Brinsworth. Local politicians and business leaders warned their loss would ravage the area. The company, said Chris Read, leader of Rotherham Council, provided “well-paid, skilled jobs of the kind there aren’t millions of”. 

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

Andrew Denniff, chief executive of the Barnsley & Rotherham Chamber of Commerce, believes the plants’ shift to focus on the production of speciality products means that “it should have a future as a highly skilled, high-end manufacturing industry”.

Although it makes up just 0.1 per cent of Britain’s economic output, the steel industry is an important sector because it provides highly skilled manufacturing jobs, with average wages above the national average and products that go into strategic industries, from defence and aerospace to transport and infrastructure. 

The government insists it is committed to the industry and has hinted it is prepared to stand behind the Liberty Steel operations — if not Gupta himself. Boris Johnson last week described British steel as a “very important national asset”. 

“It would be crazy if we were not to use this post-Brexit moment to use the flexibility we have to buy British steel,” the prime minister said.

But industry stakeholders say that, despite the warm words, Johnson lacks a plan, which is badly needed if the British steel sector is to go “green” and reduce emissions to “near-zero” by 2035 as suggested by the UK’s Climate Change Committee.

There is “an industrial policy question here”, said Chris McDonald at the Materials Processing Institute, a steel research group. The government has said it recognises the steel industry is important. But to make green steel a reality would require £6bn-£7bn of investment on the sites themselves, on top of supporting infrastructure, McDonald estimated.

“Where is that going to come from?”

It is an issue officials at BEIS, the UK business department, are grappling with. Kwasi Kwarteng, the business secretary, re-established the UK Steel Council last month, allowing government, industry and trade unions to jointly develop a plan for the sector.

A viable industry will also require long-overdue action from ministers to address high energy costs and business rates to create a level playing field with overseas competitors. 

Meanwhile, there are doubts over what to do about Liberty Steel. The company is in talks with suppliers and customers, which include Rolls-Royce, to improve cash flow in the short term. Ministers have drawn up contingency plans to take over the running of the plants in the event of a collapse.

The Treasury supported British Steel in the same way in 2019 before it was finally sold to a Chinese group, but this approach cost the taxpayer close to £600m and led to losses in the supply chain.

Sarah Champion, MP for Rotherham, said if the government is going to step in “it needs to do so before [the steel operations] become insolvent”.

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

Gupta last week promised that no UK plants would close “on my watch”. The longer the uncertainty persists, however, the more hollow those words will start to sound.