Published: 28th May 2019
The collapse of British Steel has placed thousands of jobs at risk at the Scunthorpe site and in the wider business community. Steel manufacturing in the UK is highly significant to industries including transport and logistics, oil and gas, construction, and also defence.
The ‘ripple effect’ that occurs when a large organisation fails is also set to impact other small businesses and trade suppliers, and in Scunthorpe itself, cafes, pubs, shops, restaurants, and even taxi companies, are all in danger of financial decline as a domino effect of bad debts and poor cash flow threatens to hit the supply chain.
British Steel in Scunthorpe is one of only two remaining blast furnace steelworks in the UK, producing steel from raw materials. So what has caused this collapse and if you’re affected, is there anything you can do to minimise the damage to your business?
A number of issues and challenges specific to the steel industry have been instrumental in the decline of British Steel. These include:
Rise in iron ore prices
Following the devastating Brazilian dam disaster in January 2019, Vale decided to decommission 10 sites in the country, triggering a worldwide shortage of iron ore and significant price increases.
Orders for UK steel products from EU customers have reduced in the midst of Brexit uncertainty - at the time of writing it remains unclear whether or not tariffs will be imposed within a Brexit deal.
According to the World Steel Association, global steel production increased by 6.4% between April 2018 and April 2019. In contrast, statistics show that global demand for steel increased by only 1.3% between 2018 and 2019.
The company was forced to approach the government for a £100 million loan to pay their pollution bill after selling excess carbon permits. The loan was needed because the European Union temporarily suspended new carbon allowances whilst Brexit terms were in debate, and the price of emissions credits has also increased considerably over the last couple of years.
Chinese steel production and US tariffs
Steel manufactured in China has flooded the market, resulting in the imposition of high tariffs on steel imports by the United States. President Trump’s 25% tariff on steel imports from Europe has also reduced demand.
High energy costs
A combination of the Climate Change Levy (CCL), the environmental tax charged by the government, and the energy intensive nature of steel manufacturing, means steel industry businesses incur higher than average energy costs.
Increased cost of raw materials
The value of sterling is negatively affected by market and political instability, and a devalued pound translates to increased costs for steel manufacturers as their raw materials are priced in US dollars.
Real Business Rescue can provide immediate support if you’re affected by British Steel’s insolvency, either directly or indirectly. We are business rescue specialists with extensive industry experience. We provide free advice to company directors, sole traders, and contractor firms – and we can also advise on a personal level if you’re concerned about the threat of bankruptcy or are considering an IVA.
What options might be available to you as a business owner in the steel industry, or one that’s affected by the collapse of British Steel?
If you have tax or National Insurance arrears we may be able to negotiate extra time to pay. HMRC operate a Time to Pay arrangement whereby eligible businesses are allowed to pay their arrears over an extended period, typically 6-12 months.
Maybe a regular monthly cash injection would boost working capital sufficiently to pay your bills without default? We work with over 50 commercial finance lenders in the UK, and can advise you on the best options for your business.
A Company Voluntary Arrangement is a formal insolvency procedure that provides protection from creditor legal action while you restructure the company’s debts. You repay creditors an agreed proportion of their debt over an extended period of time, and remain in control of the company.
Entering company administration triggers a moratorium period of eight weeks, and is a potential option if your financial situation is believed to be surmountable. Some businesses exit administration via a CVA, but it may be possible to trade your way out of financial difficulty.
If you’re eligible for pre pack administration, underlying business assets will be sold and a new company established without the debt. This is an official insolvency procedure that can save jobs and preserves asset values.
For more information on how we can help, and to arrange a free same-day consultation, please contact one of our partner-led team at Real Business Rescue. We are insolvency specialists and operate from an extensive network of offices throughout the UK.