British Steel, owned by China’s Jingye, faces a tough negotiation with new UK Prime Minister Rishi Sunak as it suffers squashed margins and a hardening stance on Chinese relations. Sources close to British Steel and Tata say the companies are banking on the government not wanting the industry to shrink any more than it already has, pointing to precedents set in North America and Europe.

In the late 1960s, the UK was the world’s fifth-largest steel producer. It dropped to 10th by the 1980s and 18th by 2015. Production peaked in 1970 with 28.3 million metric tons a year, but has since slid to just over a quarter of that figure.

Earlier this month, ArcelorMittal broke ground on a new CAD 1.8 billion (£1.15bn) steelmaking project, with local and national governments footing half the bill. The project will use clean-burning hydrogen gas when it can be made in good enough quantities and natural gas in the meantime.

“We’re investing in the future of this plant and this industry,” said Canadian Prime Minister Justin Trudeau.

“This day is possible thanks to the power of partnership and in particular the confidence and support the governments of Canada and Ontario have shown in us,” ArcelorMittal Chairman Lakshmi Mittal said more pointedly.

China controls half the world’s steel and has been accused by the UK and EU of undercutting local suppliers. Britain’s Trade Remedies Agency recently recommended renewed anti-dumping tariffs on bars of steel used in the construction industry.

In the UK, the high cost of carbon permits and energy is particularly squeezing British Steel, according to insiders.

However, Beijing is sensitive to the assets China buys, says Nicola Leveringhaus of the School of Security Studies at King’s College London.

“British Steel is a very sensitive industry to the British and I think the Chinese are aware of that. They do their homework on the industries that they buy into,” she said.

Steel is responsible for about 8% of global carbon dioxide output and it is one of the toughest industries to crack because of the high temperatures needed and its ubiquity in manufacturing. If governments want to hit their targets, steel CO₂ must be cut.

In addition, the pressure is on from customers. This week, Ford said it signed a preliminary deal with German and Dutch steelmakers to supply steel made using renewable energy.

However, this has not sped up moves to make greener steel in the UK.

As well as ideological barriers, the expense of the change is slowing the industry down, says Björn Nykvist of the Stockholm Environment Institute.

“You have to give up this old technology that you might still have sunk cost in, you have to depreciate faster basically, and it’s not easy for these existing companies to do that,” he said.

Read the article in its entirety here.