China’s second-largest steel manufacturer, Ansteel, has abandoned plans to build a huge steel mill in Western Australia, reportedly deterred by the high costs of manufacturing in Australia.
The Australian reported today that Ansteel “never seriously pursued the idea of building the integrated iron and steel plant and rolling mill,” which was the bones of an agreement signed in 2009 between West Australian Premier Colin Barnett and Ansteel president Zhang Xiaoqiang.
When the contract was signed, Ansteel planned to build Western Australia’s first steel mill near Geraldton.
According to The Australian, Ansteel has since realised it is cheaper to ship iron ore from Karara back to its steel mills in China, rather than process it into steel products in Australia – since manufacturing costs in Australia are comparatively high.
The news comes only two weeks after Australia’s largest steel-maker, BlueScope Steel, announced it will shut-down its number six blast furnace at Port Kembla, south of Sydney, and close its Western Port hot strip mill, east of Melbourne.
The closures will herald the loss of 1,400 Australian jobs, and will mark the end of BlueScope’s steel exporting career.
Australian Workers Union (AWU) national secretary, Paul Howes, said the BlueScope closures are a “devastating blow” for the local manufacturing industry which is facing its worst crisis since the Great Depression.
"Today’s announcement is devastating for the families of more than 1400 workers who will be feeling the trauma and distress that comes with the loss of a secure income," AWU national secretary Paul Howes said in a statement.
"We’ve got to face the reality of the manufacturing crisis that’s before us. We can’t accept job losses as the norm and we can’t rely on imported goods in our strategic sectors," he said.
Though it is not clear if BlueScope’s bad news affected Ansteel’s decision in any way, The Australian suggests that Ansteel could be bowing-out of the Western Australian steel market due to cost blow-outs from its $6 billion Oakajee port and rail project designed to deliver to and from the iron ore mines in the country’s Mid-West.
At the end of July this year, Ansteel announced it would need a further $600 million in equity towards the Karara development, bringing the total cost to $2.57 billion.
AnSteel is located in Liaoning Province in Northern China. The company currently produces 37mtpa of steel per year and has plans to increase production to more than 50Mtpa with major industry rationalization, according to its website.
AnSteel is a supporter of the development of Karara, having invested $675 million into both Gindalbie and the Project.
Image: Ship loading at Geraldton Port.