Little future in Australia focussing on garden variety steel

Can Australia still make steel? Brent Balinski spoke to metals expert Professor Geoff Brooks from Swinburne University about the industry’s difficulties, where it can excel, and the competition it faces.

Australia’s last two major steelmaking sites have had to fight for their lives in the last year, and it is safe to say the local steel industry has struggled.

A major problem is a lack of strategic focus on areas where manufacturing makes sense – specialised, high-value products, rather than stock-standard, low-cost ones – at the Whyalla and Port Kembla sites in question. This is the opinion of Professor Geoff Brooks, Pro-Vice Chancellor (Future Manufacturing) at Swinburne University and a leading authority on steelmaking.

“In the short-to medium-term, we are in serious problems, because our steel producers are probably too much aimed at the lower-quality product end of steel, and this means they can’t compete very well with cheap production from China and other parts of the world,” he tells Manufacturers’ Monthly.

Though China isn’t the sole reason for BlueScope’s and Arrium’s difficulties, its offloading of under-priced surplus steel is huge concern for them as well as for many countries. Arrium (which makes mostly rod and bar steel) and BlueScope (which makes what Brooks describes as “mostly mid-grade sheet steels”)  are very much exposed to the dumped basic products.

Brooks believes that at Whyalla, investment in equipment such as a vacuum degasifier to produce higher-grade steel is necessary if the site survives the administration process and is to have a future past the current crisis.

A lack of innovation

As he did the last time Manufacturers’ Monthly spoke to him, Brooks pointed out a lack of innovation in local metals production in the last decade or so. A model worth considering is Sweden, with a population of only 10 million, though an industry that creates premium stainless steel, most famously at companies like Sandvik.

There are examples of non-stock products here that have been successful such as coated steel at BlueScope and grinding media at Arrium subsidiary Moly-Cop.

The issue of co-investment in upgrades at Whyalla to produce the special flat steel for the upcoming future submarine fleet is at least reasonable to consider, believes Brooks. However, any upgrades should enable the company to also target export markets.

“I’d be thinking, ‘let’s get clever at making this sort of steel and we can think about selling that to other countries,’” he adds.

Currently, only BlueScope, which met designer DCNS next week, is able to produce suitable steel for the purpose. The French company is set to visit Arrium “within months” about its capabilities.

Whatever the outcome on steel supply, the first submarine will not be built until next decade.

Dealing with dumping

For the time being, the issue of dumping is a pressing one.

According to the World Steel Association, 1622.8 million tonnes of crude steel were made. China accounted for 803.8 million tonnes.

Recently re-opening some of the mills that were closed last year due to better prices for the commodity, China has added roughly 50 million tonnes of capacity this year, according to figures from research house MySteel in Aprit. Australia’s entire output last year was less than a tenth of this.

Big swings in production in the massive command economy – and the glut when demand doesn’t meet up – are of huge concern to other countries’ steelmakers.

According to the Productivity Commission (whose views on the need for dumping protection aren’t always consistent with the industry’s) 86 per cent of new anti-dumping investigations in 2014/15 were for steel products.

Taking action against China’s steel industry is a sensitive issue. By some calculations, over 60 per cent of their steel is made from Australian iron ore – our top export.

Last week, the Minerals Council of Australia urged the prime minister – who, with the United States, is trying to encourage China to wind back overproduction – that “we should make clear there should be no artificial interference in the global steel market.” How artificial the market is and why depends on who you ask, but iron ore exporters are naturally happy with China buying their product and are not keen to see the boat rocked.

Brooks calls action against dumping “completely reasonable”, and a real concern for countries that care about having a steel industry. He cited the monthly South East Asian Iron and Steel Industry Institute newsletter on the desk in front of him.

“Almost every single article in it is about countries trying to protect themselves from steel dumping… the reason being that in steel, China is like a giant elephant,” he said.

“Countries of course don’t want such an important industry to be crushed by a casual change in what the Chinese are doing.”

Elephantine struggles against dumping aside, with a smarter approach to steel and a focus on higher-value products, he believes there are good reasons that Australia could be a successful steelmaking nation. Also, a nation without the ability to make its own steel is exposed in a number of very undesirable ways.

There are good reasons why Australia should maintain its strategically important steel sector. However, it shouldn’t just be a matter of surviving in the longer term, according to Brooks. Rather, it should be about excelling.

The nation actually has some pretty decent advantages: excellent ores, plentiful coal supplies, good ports, an educated population and proximity to fast-growing Asian economies, presumably hungry for things such as new kitchens and whitegoods as they increase in wealth.

It is in this direction that the sector should be looking.

“Even though it makes over half the world’s steel, it still imports steel because it can’t make at the really high-quality end,” said Brooks of China.

“And that’s the end we should be aiming at.”

 

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