More than a decade ago, BHP Billiton demerged its steelmaking facilities from its then highly profitable minerals and energy division.
The two steel plants in Port Kembla and Whyalla, which were formerly part of an integrated company that produced the iron ore and the coking coal for steelmaking, became stand-alone steelmakers at a time when China became a serious competitive threat.
Its Port Kembla and Whyalla operations were also separated from each other, becoming BlueScope in Port Kembla and One Steel (now Arrium) in Whyalla.
China produces half of the world’s steel in a global market that is forecast to deliver a surplus of steel exports this year of 6.5 million tonnes.
Since the time of the demerger, or “spin off”, the fortunes of both steelmakers have gone into decline. In mid-June, Arrium, a company with a market value of $425 million, announced an increase in its debt levels to $1.85 billion.
In 2011, BlueScope shut down the No. 6 blast furnace at Port Kembla, one of the most technologically advanced in the world. One thousand workers lost their jobs as the company retreated from the export market.
Just two years prior to this, BlueScope was exporting 50% of its steel production on the back of blast furnace efficiency well above world average.
The company also cut back its operations at Western Port in Victoria and ceased production of tinplate. Food manufacturers in Australia now import tinplate to package their products.
Another of BlueScope’s products that has a short life is automotive steel. The three major vehicle producers in Australia, Ford, Holden and Toyota will all have ceased operating by the end of 2017. The compounding effect on the vehicle components sector will also reduce the demand for automotive steel.
BlueScope has the capacity to make 2.6 million tonnes of raw steel a year which is about 500,000 tonnes more than its present domestic market sales. While it turns a profit on the 2.1 million tonnes sold in Australia, it loses about $100 million a year on the export of its surplus.
All of this has led to speculation that BlueScope will shut its last remaining blast furnace at Port Kembla and, instead, import steel.
The company employs about 3500 workers at Port Kembla and several thousand local contractors rely on the steelworks for a significant amount of their work.
If the remaining No.5 blast furnace were decommissioned, 2000 direct jobs would be lost, together with thousands of contract jobs.
The prospect of closure has surfaced during enterprise bargaining negotiations between BlueScope and the union representing the vast majority of workers, the Australian Workers’ Union (AWU).
While the company has indicated that no decision had been made to close Port Kembla, it said in a statement to the Australian Securities Exchange on June 17 that it was reviewing ways to improve its competitiveness because the costs of manufacturing steel are too high.
The company has reportedly identified 85 different projects that are designed to reduce steelmaking costs by $50 a tonne — about 10% of current production costs — as part of a program to realise $130 million a year in savings.
It’s no coincidence that cost-cutting and rumours of closure have come to light during enterprise bargaining negotiations. According to some industry commentators, Arrium has only kept Whyalla running because it would cost too much to shut it down.
The cost of closing the Port Kembla steelworks is estimated to be between $500 million and $1 billion. Savings of $130 million a year would significantly reduce these closure costs and provide BlueScope with further incentive to cut and run.
The AWU’s Wayne Philips, no stranger to negotiations with BlueScope, has described this latest round of talks as “bizarre” with the company “making too many preparations to get out”.
Closure of the steelworks would have a devastating effect on the local economy. In the past 12 months, the official unemployment rate in the Illawarra has more than doubled from 4.5% to 9.4%.
The prospect for redundant steelworkers gaining alternative employment in the region are grim. Following the closure of the No.6 blast furnace in 2011, only half of the 1000 workers made redundant have managed to find a job after 18 months.
The crisis in the steelmaking industry is part of the long-term decline in Australian manufacturing. The sector’s share of GDP is less than half of that 40 years ago and employment figures for the last financial year of around 900,000 are the lowest ever recorded despite rising labour productivity.
This decline is sharply felt in regional areas such as Geelong and Wollongong and the outer suburbs of Melbourne and Adelaide.
Driving down workers’ wages and conditions won’t solve the problem and neither will the disinterested onlookers in federal parliament.
In 1982, it took a battle of massive proportions by workers and the Illawarra community to save the steelworks.
It looks very likely that this has to be fought again because what workers do understand from bitter experience is that if you don’t fight you lose.
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