Burning Wood Is Metal Maker's Plan to Revive U.K. Steel Industry

  • Switching to biomass from coal means cheaper power to run mill
  • Gupta to melt scrap rather than iron ore to profit amid glut

Sanjeev Gupta is convinced there’s still a profitable life ahead for Britain’s nearly bankrupt steel industry, and he’s planning to use wood pellets and sea tides to save it.

After earning a fortune processing steel and making metal parts in Asia and Europe, the 44-year-old Gupta is steering his Liberty House Group into a U.K. industry on the edge of collapse. A global glut of Chinese imports and high costs have forced mills to close across the country. His plan involves rewriting the economics of the business by acquiring distressed assets, using scrap metal instead of iron ore, and getting some government help.

The key is cheaper electricity to run furnaces in a country where rates are twice the European average. In 2013, Liberty acquired a shuttered mill in Newport, Wales, and then bought an aging power plant nearby better known as a recurring locale for the long-running Dr. Who television show. Gupta wants government help to convert the coal-fired generator to run on wood pellets and is investing in a venture to use the tides in Swansea Bay to make electricity.

Viable Business

“If U.K. energy costs were competitive, we could make steel all day long,” Gupta said in his office at the Uskmouth power plant with its 121-meter (397 feet) smokestack built in 1959. “When we make steel, it will be from recycled material so it will be viable. We expect we will grow and employ more people, not cut jobs.”

Sanjeev Gupta.
Sanjeev Gupta.
Photographer: Chris Ratcliffe/Bloomberg

Gupta, Liberty’s chairman, says reviving the Welsh mill would allow him to supply as much as 20 percent of U.K. steel demand. And he’s already considering expanding. Liberty is in talks to acquire some mills from Tata Steel Ltd., which would also be converted to make steel from recycled scrap rather than iron ore.

Gupta was born in India into a family of industrialists. He got his start in business selling bicycles in Turkey before moving to England to study economics at Cambridge University. He began trading commodities from his student accommodation and created Liberty House in 1992, naming it after the Statue of Liberty in New York Harbor. Today, he and his family live near the power station and steel mill in Wales.

Subsidy Need

There have been challenges. Days after acquiring the power plant, the government cut some of the funding for biomass projects that Gupta was counting on to help finance his conversion of the coal generator.

Now, he’s hoping to win some subsidies being awarded later this year, competing with other renewable producers for 730 million pounds ($1 billion) of funding. Gupta will invest more than $100 million in converting the station and buying a machine to make the wood pellets. If the government aid doesn’t come through, Gupta says he’ll try to use recycled waste as fuel, including from sewage treatment plants.

“We didn’t buy this station to run coal,” he said.

He needs the cheaper electricity to operate an arc furnace he plans to install at the mill. The forge will enable Liberty to make its own steel by melting some of the 9.5 million metric tons of scrap the U.K. produces every year, he said. The mill currently processes steel that’s being turned into hot-rolled coil for parts used in Jaguar cars to Boeing Co. planes.

Gupta’s plan to melt recycled steel in Britain “makes sense,” though prices probably will remain volatile, said Dominic King, head of policy and representation at industry lobby group U.K. Steel. In the first quarter, scrap prices fell to their lowest in at least five years, according to The Steel Index data.

Tidal Power

Gupta said his family companies, with a combined annual revenue of $6.7 billion, have also invested an “eight-figure sum” in the world’s first tidal-lagoon project, which would produce electricity from the Severn Estuary. He declined to provide further details. The 1 billion-pound Swansea Bay project is awaiting a government review on the cost of the technology.

After once producing about 40 percent of the world’s steel, the U.K. only has two primary plants left -- Port Talbot and a plant at Scunthorpe in North Lincolnshire. Tata is planning to sell its U.K. operations after years of losses, raising concern that the plants will be forced to close and make the U.K. the first member of the Group of Seven economies without blast furnaces. China is now the world leader, making about half of the world’s 1.67 billion tons of steel.

“We started the plant at exactly the worst time in the industry,” Gupta said. “If we can survive and make money now, then we are in a good position for when the market improves.”

Who is Sanjeev Gupta?

  • Born in the Punjab, India in a family of industrialists that started with his grandfather
  • Came to the U.K. when he was 12; took two gap years after A-levels during which he sold steel bicycles in Turkey
  • Studied economics and management at Cambridge
  • Founded Liberty, named after the statue on Liberty Island in New York City
  • Moved to Dubai with his family when he believed the world’s business center of gravity was moving east but returned to the U.K. last year
  • Holds net assets of $1 billion
Before it's here, it's on the Bloomberg Terminal. LEARN MORE