The government is in favour of merging all the UK’s steelmakers, but ministers do not want to nationalise any of the companies, the BBC can reveal.
There are six steel companies in the UK, four of which are currently being financially supported by the government, and ministers believe the sector is too fragmented.
It is understood the preference inside the Department for Business and Trade (DBT) is to find a joint buyer, rather than nationalise the companies.
Any future plan would need the backing of the current owners, but it is understood ministers have told the sector they believe a merger is the best way to be sustainable in the long-term.
A government source said: “We have always been clear steelmaking has a bright future in the UK but that must come in partnership with the private sector.
“Mergers are commercial decisions for individual companies not the government. Labour has taken bold action to ensure steelmaking can thrive, including trade defence measures, lowering energy costs and protecting blast furnace production because we want to work with private companies to make steel here in the UK.”
The UK’s steel industry has faced major financial difficulties in recent years due to high energy prices, increased tariffs and a glut of steel in the global market.
Ministers are already searching for buyers for two steel companies and another has been publicly owned since 2021.
The UK wing of Liberty Steel in South Yorkshire collapsed into government control last month after insolvency courts granted a compulsory winding up order.
Speciality Steels UK (SSUK), part of the Liberty Steel metals empire of controversial tycoon Sanjeev Gupta, was placed in the hands of a government appointed liquidator last month and ministers have agreed to cover the ongoing wages and costs of the plant while a buyer is sought.
It’s understood that a number of commercial buyers have already approached the government about taking over SSUK, which has already transitioned to greener electric arc furnaces.
Ministers took control of British Steel in Scunthorpe in April after accusing the Chinese owners Jingye of trying to close down the site’s blast furnaces.
The search for a new buyer for British Steel has stalled in recent months after Jingye unexpectedly asked for a sum in the hundreds of millions to hand over ownership.
BBC News has been told that Business Secretary Jonathan Reynolds is set to fly to China next week to negotiate with Jingye officials.
There is some concern within government that finding a buyer for British Steel may be more difficult, given the site uses old-fashioned blast furnaces.
Tata Steel, in Port Talbot, was given a £500m government rescue package last year to help the company move to greener forms of steelmaking.
Sheffield Forgemasters was nationalised by the Ministry of Defence in 2021 after the company faced financial difficulties throughout the 2010s.
A senior source in the Department for Business and Trade said: “We are trying to fix the UK steel sector in the round.
“We needed Jingye off the board, we are very close to doing that. We needed Gupta off the board, we’ve done that.”
The source added that there was now a belief inside government that the UK’s steel companies “should all be brought together”, to make the sector more financially sustainable, but that such a move might not be possible if the current owners do not all agree.
The government is understood to have told the steel sector that even without a shared ownership model, the companies will be expected to work together much more closely in the future.
Ministers have always maintained that full nationalisation for any steel company is not the government’s preference and the source added that it was “unlikely” the companies would be nationalised together.
