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British Steel is on track to be fully nationalised within weeks, the Guardian understands, a year after the government took over the daily running of the loss-making business from its Chinese owner.

The steelmaker, which employs 3,500 people at its plant in Scunthorpe, was taken under government control last April amid fears that the owner Jingye was planning to shut down the site.

British Steel operates the last two remaining blast furnaces in the UK but it is still economically controlled by the Chinese company, which bought it out of insolvency in early 2020.

Ministers moved to designate the steel industry as vital to national security last week, a move that could clear the way for a nationalisation on those grounds, a source with knowledge of the matter said.

They are understood to have offered £100m to Jingye for British Steel earlier this month but were rebuffed. The Chinese company had originally demanded more than £1bn.

Alternatively, the government could simply set Jingye a deadline for a deal to be done, the source added. Whichever route they go down, ministers plan to take economic control of British Steel from Jingye in the coming weeks, the person added.

Shutting the plant would have ended Britain’s “primary” steel-making ability because blast furnaces allow the metal to be made from scratch, rather than relying on scrap.

But by the end of January this year the cost of keeping British Steel running had ballooned to £377m, and could exceed £1.5bn by 2028 if it continues at its current rate, the National Audit Office said earlier this month.

Officials are therefore keen to resolve the ownership issue imminently, partly because they would not be able to sell the company to another private investor without doing so. The prospect of an imminent full nationalisation was first reported by the Financial Times.

Gareth Stace, the director general of the trade body UK Steel, said the sector would “strongly welcome” the nationalisation of British Steel. “This would provide vital certainty for the workforce, the company’s customers and the wider supply chain at a critical moment.

“Maintaining domestic production capability for British Steel’s products is essential not only for economic growth but also for our national security and resilience. This will hopefully mark the beginning of a clear and credible long-term plan for British Steel.”

Officials have sought to increase British Steel’s output to improve profitability, after Jingye said the Scunthorpe plant was losing £700,000 a day when it announced plans to close the site in March 2025. Any new owner would need to invest hundreds of millions of pounds to install new electric arc furnaces to replace the polluting blast furnaces, which rely on fossil fuels.

Earlier in March, ministers said they would double tariffs on imported steel and cut the amount that can be bought from abroad in an attempt to protect the industry from a glut of cheap Chinese imports that have driven down prices.

A government spokesperson said: “We have been clear that safeguarding UK steelmaking is our priority. We continue to engage with the owner to find a solution that protects workers, production and the national interest, and we will not comment further while discussions are ongoing.”