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British Steel was forced to close one of its two blast furnaces in Scunthorpe last year after using the wrong type of coal, in the latest sign of a crisis engulfing its Chinese-owned UK operations.

The debacle caused initial fears among some government officials that British Steel might try to sabotage its own loss-making plant, but ministers were assured that the closure was due to a management error.

The disclosure comes as it emerged that British Steel has abandoned plans to restore steelmaking to Teesside, as part of a government-backed restructuring of the company’s operations to switch to greener forms of production.

The initial plans submitted by the company, which is owned by China’s Jingye, planned to build an electric arc furnace in Scunthorpe and one in Teesside, but people familiar with the situation confirmed that the aim now is to build two on the Lincolnshire site.

Lord Ben Houchen, Conservative mayor of Tees Valley, said the Labor government was opposed to the idea and instead favored the concentration of new British Steel electric arc furnaces at the existing Scunthorpe plant.

“It’s disappointing,” Houchen told the Financial Times. “Clearly there is a conspiracy by the Labor government and the unions to keep this from coming to Teesside.”

Allies Jonathan Reynolds, business secretary, said the future business structure was a commercial decision for British Steel, but noted that Teesside had proven to be an attractive location for inward investment.

The company’s decision to drop plans to build a “green” furnace on Teesside and another of its main works in Scunthorpe was first reported in the Sunday Times.

Problems at British Steel’s “Queen Anne” furnace in Scunthorpe emerged last year after the company began importing coking coal after the coke ovens that feed the two furnaces were closed in 2023.

The engineers mistakenly took coke that was a mixture of “low quality and low condition”, and that led to the furnace becoming inactive, according to several people familiar with the situation.

The shutdown sparked initial government concerns that British Steel may have tried to damage its own plant to justify closing the UK operations it lost, according to people briefed on the issue.

But a government insider said Reynolds believed it was due to “incompetence and cost-cutting” rather than any nefarious intent. The engineers did not understand the complexity of the company’s blast furnace demands, said a second person familiar with the situation.

Talks between the government and the company on the scale of the support package for restructuring its operations remain ongoing. British Steel’s latest accounts, filed last year, show that Jingye injected £100mn of equity into the business in October 2023.

British Steel has made it clear it is seeking more than the £500mn deal for Tata Steel’s Port Talbot plant in Wales to build an electric arc furnace. The government says it will invest £3bn, including £500mn for Tatato the British steel industry in the coming decade.

Union representatives say their priority is to keep the blast furnaces open as long as possible. Electric arc furnaces are less carbon-intensive but employ fewer people and a shift to greener forms of steelmaking could put half of the 4,500-strong workforce at risk.

Alasdair McDiarmid, assistant general secretary of the Community union, whose members include steelworkers, said “it is essential that the two blast furnaces remain at Scunthorpe to facilitate the transition to new technologies at the site”.

“This is a priority for us as a union and is at the heart of the proposals we presented to Jingye, and we are now waiting for the company’s response.”

British Steel declined to comment on the reasons why the Queen Anne furnace went down but said both of its furnaces were now operating. It continues to buy “raw materials to support the production of iron and steel”.

The company, it added, remains in “ongoing discussions with the government about our decarbonisation plans and the future operations of our UK business”. Although progress is ongoing, “no final decisions have been made,” it said.