From the ABC:
After almost 90 years of operation, through numerous gyrations of the economic cycle, Port Kembla’s last remaining blast furnace is facing a distinctly bleak future.
In current conditions the BlueScope Steel operation is uneconomic.
Even the recent collapse of the iron ore price doesn’t help that much as steel prices are falling too.
BlueScope has traditionally been a prisoner of the so-called “East-Asian steel spread”, which has been shrinking for some time due to the continuing regional oversupply and a flood of cheap exports pouring out of China.
Put simply, the “spread” is the difference – or margin – between input costs, such as iron ore and coking coal, and the East-Asian Hot Rolled Coil (HRC) steel price.
While the input prices have tumbled, it’s been more than offset by the HRC price falling as well, from more than $US500 per tonne a year ago to less than $US350 per tonne.
Such is steel’s fall from grace that the influential industry newsletter Platts pointed out that the wholesale price of cabbages and steel in China have almost converged and, on a retail basis, Chinese cabbages are about $US200 a tonne more expensive than HRC.
The “spread” is now back to GFC levels of around $US200 per tonne.
UBS analyst Ramoun Lazar told clients that at these levels BlueScope’s Australian steel business will swing into a loss again this year.
Mr Lazar said the on-going global overcapacity makes BlueScope’s remaining blast furnace at Port Kembla “unsustainable given current steelmaker spreads and fixed cost profile.”
Last month, Port Kembla’s local newspaper – the Illawara Mercury – reported that management was considering closing steel making by as early at 2017.
The company responded saying, “No such decision has been made.”
However the company’s brief statement made the telling point that manufacturing costs were “too high” and these issues needed to be addressed in the current enterprise agreement negotiations.
Those negotiations are expected to wrap up in coming weeks and should provide some clarity about the mill’s future.
Asian steel prices will keep falling for years yet but the steel spread may not get too much worse depending upon how quickly the Australian dollar falls. Still, all of those steel workers ought to be considering a shift into the services economy. Becoming real estate speculators is one option for those with capital. For those without they can brush up on their barista skills.
