April 13, 2016Whyalla
Manufacturing traded away
The fate of Arrium’s 3,000 workers and their families in its Whyalla steel works and mining operations hangs in the balance. Arrium went into voluntary administration on Thursday last week (April 7) and appointed the company Grant Thornton as its administrators. Grant Thornton has indicated it will be “business as usual” while it goes through the company’s books and assesses the situation.
(Arrium is an international mining and materials company. The company was spun out from BHP Billiton in 2000 as OneSteel when it was almost entirely a domestically focused steel manufacturer and distributor. The Whyalla steelworks, harbour and associated iron ore mining operations along the Middleback Range in South Australia were among its principal assets. The company subsequently focused on growing its resource-based businesses and has significant mining and mining consumables businesses, as well as its steel and recycling business.)
They have scheduled the first creditors’ meeting for April 19 and committed to putting their recommendations for the company’s future to a creditor’s meeting by May 13 at the latest.
Whyalla is a steel city about 380 kilometres north-west of Adelaide, with a long and rich history in the development of South Australia. Whyalla also suffered a big blow in 1978 when its shipbuilding yard was shut down.
South Australia has already taken a severe hammering with the demise of the auto industry with the state government seeing its future largely in the manufacturing for the military and the mining of uranium.
The closure of Arrium would have wide implications with closure of many associated engineering workshops and small businesses. The town and whole region relies on Arrium for the jobs it provides and their multiplier effect. Around 7,000 people would be affected in a town of 22,000.
The company has been in difficulties for some time. It shed 900 jobs last year.
Its obligations to its employees are around $500 million. Arrium owes an estimated $1 billion to the big four banks. Another $1.8 billion is owed to international banks and bond-holders. Trade creditors are owed around $1 billion. The company also has clean-up obligations for its Whyalla steel works and its South Australian iron ore mines and processing facilities.
Its massive debt was run up during the mining boom when it paid high prices to expand its iron ore business. The market has since crashed, as markets inevitably do, and it has failed to renegotiate its debt with its international lenders.
“Australia’s steel manufacturing industry has taken a massive hit today and the federal government and Arrium have a lot to answer for,” CFMEU Construction and General South Australian state secretary Aaron Cartledge said when the company went into voluntary administration.
“Industry Minister Christopher Pyne must level the playing field by stopping unfair imported steel shipments or Whyalla will be reduced to little more than a coffee stop on the way from Adelaide to Port Lincoln.
“In spite of promises made before the 2013 federal election, the Abbott and Turnbull governments have not taken seriously its commitments to ensure Australia has a strong anti-dumping and countervailing system and that imported steel is up to Australian quality standards,” Cartledge said.
The CFMEU has legitimate concerns over the supply of imported, non-compliant and often faulty structural steelwork being used in major development projects in Australia, pointing to the weakness of Australian compliance regimes.
The price of steel has fallen in line with iron ore on global markets were there is a crisis of overproduction. “The world faces a huge oversupply of steel – currently only two-thirds of the steel being produced is actually being used,” the BBC public broadcaster reported. (Tim Bowler, “Britain’s steel industry: What’s going wrong?” 30-03-2016)
Ironically, Australia is one of the countries that rapidly expanded production of iron ore for export and contributed to the global surplus.
Cartledge said bad government policies had supported sub-standard imports over local steel. These cheaper imports are coming in the main from Spain and China.
Hypocrisy
Opposition leader Bill Shorten has called for preference to be given to Australian steel in government contracts and proposed federal co-investment with Arrium and improvement in the infrastructure.
Prime Minister Malcolm Turnbull was quick to attack Shorten, reminding him correctly that giving preference to Australian steel would be in breach of Australia’s free trade agreements.
Industry Minister Christopher Pyne, whose home state is South Australia, undermined Turnbull: “Because of the government’s commitment to the 12 subs, the nine frigates, the patrol vessels and so on, there will be a whole body of work coming through the pipeline.”
Really? There is no commitment to build the submarines in Australia, let alone use Australian steel.
Pyne continued, “I’m optimistic and the people of Whyalla should not be panicking.”
For the past four decades Australia’s manufacturing base has been whittled away with closure after closure, a process accelerated by government policies. Important skills have or are being lost. Arrium is one of two remaining steel works, the other being BlueSteel in NSW.
Shorten and Pyne, as well as Turnbull, know full well that successive Australian governments have signed away Australia’s right for the government to give preference to Australian products. The only measure open to the government if it wishes to impose some form of tariff is to make a claim of dumping – the price of goods is below the cost of production or the price charged in the country of export.
Free trade agreements
The Turnbull government is presently seeking to become a member of the World Trade Organisation’s Government Procurement Agreement which would open up government purchases to international competition. It has already made such a commitment in a number of its free trade agreements including those with Japan and Korea.
The Trans Pacific Partnership Agreement* contains a chapter on government procurement. The website of Australia’s Department of Foreign Affairs and Trade contains a summary of the chapter. (drfta.gov.au/trade/agreements)
It states unequivocally: “Critically, the Chapter will ensure that governments do not discriminate against foreign suppliers when assessing tenders and awarding contracts… TPP Parties will be required to establish a review mechanism so that suppliers (both foreign and domestic) can challenge government procurements that do not follow proper processes.
“The contract must be awarded to the supplier offering the best value for money solely on the basis of the stated evaluation criteria.” This generally applies where amounts above a certain threshold are involved.
Tne CFMEU’s Aaron Cartledge said the government must play a role in creating certainty for workers by signalling to the steel industry that it will act on sub-standard and unfairly priced imports that affect the steel industry.
Cartledge said the minister could do something right now by committing to procure Australian made Steel for all government-supported projects, by levying emergency safeguard tariffs on imported steel and by starting to get serious about creating a level playing field which supports regional industries and the families and communities which rely on it.
Neither the Coalition nor Labor are prepared to do this. They remain committed to the free trade agreements they signed.
Planned economy
Financial bailouts are not the answer. They buy workers a few more years, but as witnessed in the auto industry, they are not a long term solution.
This will take a new type of government that refuses to ratify the TPP: A government that puts the interests of Australia and its people before US and other transnational corporations.
Australia needs a government that will plan the future structure of the economy, instead of leaving it to international capital, i.e “market forces”. This includes rebuilding a strong manufacturing base, boosting the number of apprenticeships. TAFE should be adequately funded and student fees abolished so that Australia has the necessary skilled labour and the subsidies to private VET colleges ended.
Whyalla would also be an excellent location for the production of solar panels and wind turbines. These could be used to supply the steel plant and Whyalla with renewable clean energy and even contribute to the national grid. Public ownership could see the income from the energy put back into the community.
* TPP countries are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.
