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British Steel collapses, putting thousands of jobs at risk

CNN logo CNN 5/22/2019 Ivana Kottasová

Britain's second-biggest steel maker collapsed on Wednesday, putting about 5,000 jobs at the company directly at risk, and threatening another 20,000 at suppliers.

The company was seeking a government bailout, but talks ended without agreement. The High Court ordered the company into compulsory liquidation, according to the government's Insolvency Service.

British Steel was reportedly seeking a government loan of £75 million ($95 million) to cover losses it said it suffered because European orders had evaporated due to the uncertainty surrounding Brexit.

"Unable to decipher the trading relationship the UK will have with its biggest market in just five months' time, planning and decision making has become nightmarish in its complexity," UK Steel, the industry's trade association, said in a statement.

British Steel, which had already been granted a government loan of £120 million ($152 million) last year, was bought by investment firm Greybull Capital from India's Tata Steel in 2016 for just £1.

The government said it has appointed EY to try to find a new owner for the company. British Steel will continue to operate and its workers will be paid while the search continues.

"Failure to find a buyer would be devastating to many areas which rely so strongly on this industry," said Hannah Essex, co-executive director of the British Chambers of Commerce.

Related video: Can a free port save this steel community after Brexit?

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The GMB labor union said the UK government should have considered all options, including nationalization, in order to save the company.

"But they either don't care or wouldn't take off their ideological blinkers to save hard working people and communities," said Tim Roache, GMB's general secretary.

European steel makers have been under pressure because of cheap competition from China. The European Commission put anti-dumping measures on Chinese steel in 2017, and extended them in 2018 after an investigation showed the practice of flooding the market with steel priced below production cost was continuing 

On top of that, steelmakers around the world were hit last year by tariffs imposed by the Trump administration. The tariffs have provided some relief to American steelmakers, but analysts say their future is also uncertain. Shares in major US steel producers have plummeted in the year since the tariffs were announced.

Jonathan Owens, supply chain and logistics expert at the University of Salford Business School, said that British Steel had been struggling in a very competitive market and that a new government loan may only have delayed the inevitable failure of the company.

British Steel produces more than 2.8 million tonnes of steel a year. It employs around 4,100 people at its works in Scunthorpe, northeast England, and 900 in other countries.

Trade unions warned Tuesday that 20,000 jobs in the supply chain would be at risk if the company collapsed.

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