From The Australian:
BlueScope Steel’s struggling Port Kembla steelworks looks to have avoided closure after a union vote approved 500 site job losses, leading chief executive Paul O’Malley to declare that 4500 jobs in the Illawarra region had been saved.
The vote to allow restructuring and extra flexibility should allow the steelworks to survive depressed steel prices and preserve BlueScope’s exposure to a rebound in steel markets, provided it is not hit by increased carbon costs, Mr O’Malley told The Australian yesterday.
BlueScope had given an ultimatum to unions and other external players that if they did buy in to management’s plans to slash $200 million of annual costs from the struggling steelworks, the company would close the plant and instead import raw steel for its Colorbond manufacturing, meaning 5000 regional jobs would go.
A sensible outcome for all. The carbon stuff is a furfy given Bluescope was refunded 95% of the price. What it also needs, but will struggle to deliver given its capital constraints, is investment in a more efficient smelter.
This goes to the heart of Australian manufacturing’s struggle for survival. If steel can do it amid the greatest global glut of the stuff in history then so, surely, can just about everyone else.
I had a fascinating conversation with a local manufacturer (of a similar rather basic product) recently and he noted that labour costs are a factor. But he went on to tell me that when one compares Australian conditions to other developed economies the challenge is more nuanced. For instance, the Australian car industry runs roughly comparable mechanised systems and base wages with the economies of Western Europe. The killer for Australian manufacturers is the add ons in payroll taxes, leave loading, penalty rates etc.
The other key challenge for the vehicle assembly sector, Bluescope Steel and basic Australian manufacturing is throughput. It was no coincidence that Australian vehicle assembly entered crisis as the dollar rose, choking off what were large exports before the mining boom. The same goes for Bluescope. It is profitable for domestically supplied steel but there is not enough demand for it. And so it exports half a million tonnes at a loss.
Thus the other key challenge for local manufacturing is macro-oriented. In a small economy, only a low currency can deliver the kind of competitiveness that enables critical mass via exports.
None of these challenges is insurmountable, which brings us to the greatest challenge of all. There is a lack of will to tackle these issues in Australian policy-making. After 24 years of gorging on easy answers in debt ponzis and serendipitous dirt booms, we’ve lost the imagination to see ourselves as manufacturers, as well as embedding the inflationist rent-seekers too deeply in our political class.
But without it, the post mining boom adjustment will be much more painful.
