This article is more than 1 year old

This article is more than 1 year old

A frontrunner to buy British Steel has been deterred by the government’s refusal to provide backing for investment in the Scunthorpe steelworks, amid concern there is just a week left to save the company.

The government’s Insolvency Service, which is funding British Steel’s operations while seeking a buyer, has given bidders until 30 June to make an offer for the company, whose financial failure last month put 4,500 jobs at risk.

About a dozen firms are thought to have made tentative approaches and the deadline could be extended if any ask for more time to draft a takeover plan.

But the Guardian understands that Liberty House, previously considered among the most likely to buy British Steel, has cooled its interest after failing to secure government support, including loan guarantees to fund investment.

Liberty wants to convert Scunthorpe’s blast furnaces, which make steel from scratch, into more cost-effective electric arc furnaces that can use recycled steel to make similar products.

But the plan would require a major outlay, which according to a person with knowledge of the situation would be in the “low hundreds of millions”.

The source said there was a “lack of enthusiasm” in government for the steps that would be required to convert the steelworks. Government officials are understood to be unwilling to provide loan guarantees or help retrain staff who might lose their jobs, although such measures are thought to fall within state aid rules.

A spokesperson for the Department for Business, Energy and Industrial Strategy, which would oversee any such guarantees, declined to comment.

The shadow minister for steel, Gill Furniss, said: “With just over a week to save British Steel from total collapse, the government appears to be risking 4,500 jobs by abandoning any chance of securing a buyer for the company.

“The government must urgently ensure all necessary support is available to a potential buyer – a long-term solution must be found as quickly as possible.”

With Liberty thought to be all but out of the running, India’s JSW and the Chinese firm Hesteel are among the leading contenders to buy all or part of the business, as well as an unidentified steel firm from Turkey.

Hesteel is owned by the Chinese province of Hebei. The firm was among the companies that the European commission targeted with increased import duties in retaliation for flooding the continent with state-subsidised product.

Hesteel, which owns businesses in the US, Serbia and Switzerland, declined to comment on whether it would submit a formal offer for British Steel or any of its assets.

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JSW Steel, part of a multibillion-pound Indian conglomerate, also declined to comment.

Representatives of several interested parties are thought to have visited the Scunthorpe steelworks over the past week, raising hopes of a deal.

Nic Dakin, the Labour MP for Scunthorpe, said: “There’s a limit to how long the search can go on but the sense at the moment is that there’s positive interest.”

A spokesman for the official receiver declined to comment on which bidders remained interested. However, people involved in the process are thought to be hopeful.

Paul McBean, a representative of the Community trade union who has worked at Scunthorpe for more than 40 years, said staff had been breaking production records to demonstrate the steelworks’ qualities to visiting prospective buyers.

He said they had adopted a “Blitz mentality” to stave off the threat of closure. The GMB union has warned that the collapse of British Steel could threaten 32,000 jobs across the UK, once suppliers, are included and devastate the local economy.

McBean said: “Can you imagine a country – not a third-world country – that can’t produce its own steel?”

He said the business minister, Greg Clark, appeared to understand the severity of the threat and had been working hard to find a solution.

Simon Boyd, the managing director of steel construction business REIDsteel, near Bournemouth, said: “The reality is that the government should step in because you can’t let British Steel die. It would be catastrophic.

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“Defence, infrastructure, construction, a whole swath of other manufacturing industries would be hit. If you’re reliant on import you can be held to ransom and if there’s a war, God forbid, you’re knackered.”

British Steel collapsed into insolvency in May, three years after the private equity group Greybull Capital, a former owner of collapsed airline Monarch, bought the business for £1.

The steelmaker blamed factors including Brexit, which it said had caused orders from abroad to “dry up”.