The future of Whyalla and our steel industry are at stake with Arrium in voluntary administration.
A proud town faces calamity if its steel industry collapses. Closure would be devastating and the costs of adjustment enormous for Whyalla and the region. The nation would lose a specialist steel maker and the security that comes with being able to manufacture structural steel for our buildings and infrastructure. Saving the operations will be costly as well. The future of our steel industry and the future of Whyalla are at stake. Around 22,000 people live in Whyalla. One-quarter of the 11,000-strong-workforce in the city work for Arrium’s steel manufacturing and mining operations. The livelihoods of thousands more depend on their existence. If closure of the steelworks, and mothballing of the mining operations, occurred the city would face the prospect of both an exodus and a vicious cycle of decline. With the exception of a major expansion of mining at Olympic Dam, there are few projects on the horizon capable of filling the investment and jobs holes created by collapse of the steel industry. Whyalla is not alone in facing a steel industry crisis. Global over-exuberance has generated a steel glut. Iron ore prices fell sharply as did the appetite for steel in the industrialising giants to our north. This will take some time to play itself out as nations like China, India and Indonesia settle into new patterns of growth, requiring less steel and iron ore. Excess steel is leading to dumping into markets like ours, America’s and Britain’s. To counter this nations like the US are imposing high duties on steel sold into markets below the price of production. Under pressure, the Australian Government commissioned the Anti-dumping Commissioner to investigate the scale of the problem in Australia. There is every reason to think that dumping is as prevalent here as elsewhere. Decisive action to stop it must be taken. Recalling the Federal Government’s response to the threatened closure of the automotive manufacturing industry in Australia, it has been hard to entertain the prospect that the government would provide substantial or any assistance to the ailing steel industry. With the stakes so high, and an election around the corner, the Federal Government has abandoned its hard-line position. It began by bringing forward the upgrade of the Adelaide to Tarcoola railway line, directing a major steel order to the Whyalla steelworks. For a short while, it looked as if the Federal Government was willing to join with the State Government and consider some form of co-investment in a rescue plan. It has since ruled this out but don’t be surprised to see it resurface in the heat of the election campaign – a campaign that will be dogged by the prospect of collapse of the steel industry. This is a global story. On the other side of the world in a coastal town called Port Talbot, more than 4000 jobs are at stake in Britain’s largest steel plant. The TATA-owned steelworks faces the same global pressures that Arrium and dozens of other plants in Europe and the United States do. At Port Talbot, a management buyout is on the cards. The conservative British government has been no idle bystander. It has intervened to buy time for a solution, suggesting that it might even be willing to co-invest in the business as part of a rescue strategy. With Arrium in voluntary administration, a forensic examination of the viability of the operations is underway. Both the steelworks and the mining operations are burdened by debt levels approaching the value of the assets. This is dangerous territory to be in. Meanwhile, global trading conditions are likely to remain hostile to the operations in the highly competitive structural steel sector. While it is business as usual with the operations, nothing short of transformative change will ensure the steelworks’ future over the medium term. Over the short term, it is difficult to see how confidence in the future of the operations can be restored without co-investment from government and a national commitment to procuring Australian-made certified steel for government-funded projects. The Federal Government hasn’t been willing to support either of these measures to date. In relation to mandated procurement of steel, some in the Federal Government have argued that it would breach World Trade Organisation (WTO) rules, and place our Free Trade Agreements at risk. There is no evidence that this is actually the case. No monopoly will be created, no rules broken, no conventions or agreements breached. Australia is able, as, other nations like the US do, to quarantine the steel industry from provisions that prevent it from procuring locally. This is what the US has done as party to the Government Procurement Agreement of the WTO. Australia is not yet a party to this agreement, but it is seeking to be one. It can do as the US has done which would result in around 20 percent of total steel purchases being for Australian-made steel. This does not look like a monopoly to me. John Spoehr is Professor and Director of the Australian Industrial Transformation Institute at Flinders University in South Australia @JohnSpoehr