Chinese firm Jingye said this week that it will invest 1.2 billion pounds ($1.54 billion) in British Steel over the next decade as part of a deal to rescue the U.K. steelmaker and save 4,000 jobs, the BBC reported.
Full Circle: From Chinese Competition To M&A Deal With Jingye
The Chinese industrial giant Jingye has agreed in principle a deal worth 70 million pounds to buy the company.
The sale was confirmed after weeks of talks that saw Jingye founder Li Ganpo visit the Scunthorpe site in the U.K. in person.
British Steel has been kept running by the U.K. government via the Official Receiver since May, when the company went into liquidation.
The company was previously in rescue talks with Ataer, a subsidiary of Turkey's state military retirement fund Oyak. The Ataer talks failed "mainly due to lack of support from the key stakeholders," the BBC said.
Over the years, the U.K. industry has been struggling amid claims that China has been flooding the market with cheap steel.
In 2016, the European Union imposed tariffs of up to 73.7% on Chinese steel after an influx of cheap imports from Asia forced European manufacturers to cut jobs and lower prices.
Ian King from Sky News said the biggest irony is that a Chinese company is buying the firm when it was the dumping of cheap Chinese steel that rendered so many European steel manufacturers uncompetitive.
The Deal Rationale
It's unsurprising that both Jingye and the Turkish pension fund were interested, as the high-quality steel manufactured at Scunthorpe complements their existing specialties, said Jonathan Owens, a logistics expert from the University of Salford Business School.
Scunthorpe is an industrial town in North Lincolnshire, U.K. While other steel mills around the world have applied similar technologies, Scunthorpe is still considered world-class, and it still supplies network rail for the U.K’s railway track infrastructure, Owens said. The steel mill makes high-grade steel with better reliability that has successfully fended off cheaper Chinese imports in the past, he said.
"Assuming there are no unforeseen problems with purchase, it will be interesting to understand what Jingye’s medium and long term recovery plans are for the plant. One strategic viewpoint could be to develop capacity for subsidised raw material into the U.K. market, which may be likely in the long-term not to be subject to high EU tariffs and, it can get enhanced leverage in the UK economy too."
The Scunthorpe steelworks. Photo by Alan Murray-Rust via Wikimedia.