Little over a year since it changed hands for just £1, the Scunthorpe steelworks in northern England is firing once again.

A sprawling industrial complex with roots going back to the 1860s, it had faced an uncertain future after becoming surplus to the requirements of its former owner, India’s Tata Steel

But salvation arrived for some 4,000 workers through Greybull Capital, an investment firm specialising in distressed businesses, which acquired Tata’s “long products” division of which Scunthorpe formed the core.

Renamed British Steel in homage to the former titan of UK industry, the newly formed company recently celebrated a return to profit during its first 12 months of independence — the unit’s best financial performance for a decade. 

Its turnround is symbolic of the renewed optimism in the country’s once-mighty steel sector, which is showing signs of recovery following a crisis that last year threatened its survival.

“In terms of output [last year] was probably the lowest level in the UK’s steelmaking history, but I believe that if the improvement efforts continue, the output of the UK steel industry can grow again,” says Roland Junck, chairman of British Steel.

The tentative resurgence is also gaining momentum at Tata, which remains Britain’s largest steelmaker by output, as well as Celsa, a family-owned Spanish company with a mill in Cardiff.

It is partly down to less turbulent market conditions. After a collapse in the value of the metal due to global oversupply, steel prices have risen over the past year.

Sterling’s depreciation following the EU referendum has also helped exporting manufacturers, while making imports less attractive.

And a combination of tough cost-cutting measures and a shake-up of ownership have breathed new life into one of Britain’s bedrock manufacturing industries.

“The sale of different facilities, whilst creating some issues with fragmentation of supply chains, has also allowed a greater degree of focus on specialist product areas,” says Chris McDonald, chief executive of the Materials Processing Institute, a research and innovation centre.

Tata has sold off some of its smaller mills to Liberty House, a privately owned commodities and industrials group. An advantage for these new entrants is they are not burdened by the legacy pension liabilities that have financially dragged on Tata. 

The improved situation in the industry contrasts starkly with the bleak outlook that engulfed it from the end of 2015. 

While steelmakers around the world were hit by the fall in steel prices, UK producers were particularly affected due to longstanding issues — namely, high operating costs, under-investment, weak domestic demand and the strong pound. The UK also suffered from cheap imports from countries such as China, which was sending excess steel overseas as its construction boom cooled.

“Overall, it is cost competitiveness in the UK that has been a problem,” says Chris Hagg, commercial director at Celsa UK.

A string of factory closures around the UK ensued, most notably the Redcar steelworks in Teesside, resulting in thousands of redundancies.

At one point, losses at Tata Steel’s UK arm ballooned to £1m a day, prompting its decision to quit the country — though it later reversed course. The company is instead pursuing talks to merge its European steel activities, which include a giant plant in the Netherlands, with those of German rival ThyssenKrupp. Tata is in the final stages of a complex pension reform that could enable a deal to happen.

Tata does not break out financial figures separately for its British business. But an efficiency drive, coupled with hundreds of job cuts at its giant Port Talbot steelworks in south Wales, appear to be bearing fruit.

Workers there say core profits are forecast to increase over the next few months, as measured by earnings before interest, tax, depreciation and amortisation. However, Tata Steel’s UK subsidiary remains financially dependent on its parent group, according to people briefed on the matter.

The company is also producing less steel, to concentrate on more valuable forms of the metal.

Bimlendra Jha, chief executive of Tata Steel UK, underlines the challenges. He says that in addition to internal efforts, the company’s results have been “helped by market tailwinds from a weaker currency and opening up of the market spread [difference between raw materials and steel selling prices]. 

“In our experience, such tailwinds are quickly reversible.”

Another helping hand for the sector has come from trade measures taken by the EU against dumping. That refers to the illegal practice of selling goods below the cost of production or home market prices.

However, many risks remain.

“The industry is not out of the woods yet,” says Mr McDonald of the MPI. “High energy prices in the UK are still a problem and vigilance is still required on anti-competitive steel dumping.”

The energy price rises particularly affect Celsa and Liberty House, which operate electric arc furnaces that melt scrap metal to make steel, using huge amounts of electricity.

And fundamentally, the global steel market still does not appear to be in balance. 

“Worldwide demand has pretty much plateaued now and there’s still this overcapacity,” says Mr Hagg. “The factors which came into play and caused the crisis 18 months ago have not gone away.” 

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