tag:theconversation.com,2011:/us/topics/whyalla-steelworks-26403/articlesWhyalla Steelworks – The Conversation2016-04-08T06:30:20Ztag:theconversation.com,2011:article/574752016-04-08T06:30:20Z2016-04-08T06:30:20ZArrium’s Whyalla steelworks another threat to fragile manufacturing sector<p>Fears abound in South Australia about the future of Arrium’s Whyalla based iron ore and steel manufacturing facilities, as the company goes into voluntary administration. In a united front the <a href="http://www.theaustralian.com.au/business/mining-energy/malcolm-turnbull-steps-in-but-no-bailout-for-arrium/news-story/13dc02174e8e547575e9b770973e4f9a">South Australian and federal governments</a> are urging calm. The administrators say it <a href="http://www.abc.net.au/news/2016-04-07/arrium-enters-voluntary-administration/7306340">is business as usual</a> until a review of the company’s operations is completed, which <a href="http://www.theage.com.au/business/arrium-can-survive-for-two-months-while-review-happens-20160408-go1ejy.html">may take up to two months</a>. </p>
<p>An agonising period of uncertainty is about to unfold for Whyalla, all in the lead up to the federal election. Just how well this is handled by the Turnbull government will have a major bearing on the election outcome, at least in South Australia.</p>
<p>The stakes are high. With the highest mainland <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6202.0Feb%202016?OpenDocument">unemployment rate (7.7%) in the nation</a>, the last thing South Australia needs is another major plant closure. The countdown is already on for the closure of <a href="https://theconversation.com/adding-up-the-flow-on-effects-of-a-holden-closure-21063">General Motors Holden</a> and much of its supply chain next year. This is expected to drive the statewide <a href="http://apo.org.au/resource/closing-motor-vehicle-industry-impact-australia">unemployment rate above 10%</a> in the absence of major new investments. The possible closure of Arrium’s steel manufacturing and mining operations in Whyalla adds to these woes. </p>
<p>South Australia’s manufacturing sector suffered greatly from the high Australian dollar. When it broke through the 100 US cents barrier in 2011, the dollar acted like a wrecking ball through the nation’s mass manufacturing industry. The dramatic appreciation during the mining boom made our manufactured exports increasingly uncompetitive in global markets. This was on top of a more protracted problem of deindustrialisation in the sector over the last few decades where around 100,000 manufacturing jobs have been <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6291.0.55.003May%202015?OpenDocument">lost in Australia</a>.</p>
<p>Arrium’s operations dominate Whyalla. The steelworks and mining operations employ around 3,000 people or <a href="http://www.theaustralian.com.au/business/arrium-administration-help-on-hand-for-whyalla-steel-workers/news-story/e792daea1ada422b2c5955eeca0fcbef">about 25% of the total workforce</a>. By my calculations, if both close, the flow-on impacts of up to 6,000 additional job losses would be devastating for the region. Unemployment in the steel town would rise sharply from 7.4% to be among the highest in the nation. The only force preventing that would be rapid depopulation. </p>
<p>Arrium, our last remaining steel manufacturer, is <a href="http://www.telegraph.co.uk/business/2016/04/07/closure-of-tata-steels-port-talbot-could-trigger-20-years-of-une/">not the only steel producer in the world</a> facing the threat of closure. One of the drivers of this in some jurisdictions has been the dumping of cheap steel by major competitors including China. The US was recently forced to <a href="http://www.wsj.com/articles/u-s-imposes-266-duty-on-some-chinese-steel-imports-1456878180">introduce duties to curb this practice</a>. Pressure on the Australian government to do the same, promoted the federal government to initiate and<a href="http://www.adcommission.gov.au/Pages/default.aspx">inquiry into dumping of steel in industry</a>. The results of that inquiry are urgently needed now.</p>
<p>Behind the scenes frantic discussions are taking place between the federal and state governments to come up with a solution. They have to test various propositions with the voluntary administrators who in turn will be in perpetual discussions with the banks. Creditors need to be convinced that a viable plan for the operations is available. So to do the federal and state government if there is any prospect of a government financial contribution to restructuring the operations. </p>
<p>The state and federal governments could, for example, make a contribution to upgrading ageing blast furnaces. A national agreement between the federal and state governments to procure only Australian standard certified steel could be put in place to instil confidence in creditors. </p>
<p>While this is all unfolding in South Australia, it is emblematic of a wider problem facing Australian manufacturing in the 21st century, the need to rapidly modernise the sector and adopt national policy settings that recognise Australian manufacturers are not playing on level playing fields.</p>
<p>This necessitates industry plans and policy that recognise these realities as well as a national commitment to the centrality of knowledge intensive manufacturing in advanced economies. While some steps in this direction <a href="http://www.innovation.gov.au/">have recently been made</a> we are regrettably not the driver of innovation that we need to be 2016.</p><img src="https://counter.theconversation.com/content/57475/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Spoehr does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Any job losses from Arrium’s Whyalla Steelworks would be another blow to the manufacturing sector and South Australia’s economy.John Spoehr, Director, Australian Industrial Transformation Institute, Flinders UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/574362016-04-08T03:10:44Z2016-04-08T03:10:44ZArrium’s collapse shows Australia must get a lot smarter about steel<p>Steelmaking has a future in Australia, but only with new business models and technologies. Arrium, <a href="http://www.afr.com/business/manufacturing/focus-now-moves-to-arrium-breakup-20160406-go0cp0">if it survives its administration</a>, must develop “smart specialisation” strategies that meet the demands for steel products in growth industries in Australia and internationally. </p>
<p>The first thing to recognise is that steelmaking is a global business, and Australia is a bit player. However, it is an important component of our <a href="https://theconversation.com/australias-five-pillar-economy-manufacturing-40639">advanced manufacturing capability</a>, and the transition to a more diversified, high value adding post-mining boom economy.</p>
<p>Over 60% of steel production takes place in China, India, Taiwan and South Korea. Many of these global businesses produce far more than the combined output of Australia’s steelmakers, creating substantial excess capacity. These countries also manufacture what could be referred to as “commodity steel” - steel that is mass produced for use in areas such as construction, infrastructure and shipbuilding. </p>
<p>Mass production can generate economies with lower costs of producing and lower prices. As global businesses have got bigger, Australian producers have found it difficult to compete in this market, though there are some important research <a href="http://www.bajc.org.au/about-us">collaborations</a> between Australian universities and the large global steelmakers. </p>
<p>Smaller businesses in the steel production industry, like most areas of manufacturing, must shift focus from commodities to a technology intensive and digital strategy. This approach is no longer just to keep costs down but to increase quality, design and innovation. It places an emphasis on what consumers want.</p>
<p>These businesses are developing <a href="http://www.howardpartners.com.au/assets/digital-steel-final-2012..pdf">smart specialisation strategies</a> that embrace the use of knowledge and technology to enhance production, performance and the embedded value of manufactured products, as well as re-configuring business processes and transforming the way business is done. <a href="http://www.bluescopesteel.com.au/">Bluescope</a> has achieved considerable international success through its Colorbond(c) product range. Areas of current and potential competitive advantage for steel include advanced manufacturing, defence, renewables and medical technologies. </p>
<p>Arrium is both a miner and a steelmaker. It would appear from its <a href="http://www.arrium.com/%7E/media/Arrium%20Mining%20and%20Materials/Files/Results/1H16%20Results%20Presentation%20FINAL%20170216.pdf">February Report for the first half of 2016</a> that its immediate problem is on the mining side, due in large part to the decline in iron ore prices. By contrast, the outlook for the steel division was painted in a very positive light. It was only the Whyalla operation that was reported as dragging the business down.</p>
<p>The longer term problem is that Whyalla would appear to be locked into the commodity steel business. No matter what the improvements in work practices, rail infrastructure and anti-dumping provisions, it should have been recognised that this is a strategy with no prospects. </p>
<p>According to <a href="http://www.afr.com/business/manufacturing/arrium-defiant-as-it-surrenders-to-creditors-20160407-go0omy">most commentators</a> , Arrium should have been re-positioning its business model as part of a planned transition out of raw steel making at Whyalla. Yet Arrium remained committed to business as usual. In February the company reported in relation to its steel division: </p>
<ul>
<li><p>A strong lift in earnings in difficult external conditions, though Whyalla had an operating loss of A$43 million for the period, together with cost reductions, productivity improvements and lower raw material costs. </p></li>
<li><p>A forecast of domestic demand increasing by 5% per annum over the period 2015-16 to 2017-18, with a solid pipeline of new construction projects, particularly high rise residential and public infrastructure.</p></li>
<li><p>A significant number of favourable anti-dumping decisions covering reinforcing bar from China, rod in coil from China, reinforcing bar from Korea, Singapore, Taiwan and Spain, with further applications being considered. </p></li>
</ul>
<p>Clearly, the banks were not impressed by this optimistic market outlook with an unchanged business model, and they may have viewed the losses in the mining business as simply overwhelming. Is this another case, like Dick Smith, where the banks moved early in an endeavour to secure their assets? Or perhaps they lost their patience? </p>
<p>But it might also be the case that Arrium has been prevented from investing in the modernisation and transformation of its steelmaking business by the short-term attitudes of shareholders and institutional investors. There would seem to have been little appetite for investing in steel growth areas and value chains, compared with the <a href="http://www.afr.com/business/mining/iron-ore/arriums-rude-awakening-20140915-jevy8">iron ore play</a> , and a shortage of necessary skills and capabilities. </p>
<p>Around the world, businesses are transforming and specialising in niche markets and products where there is high demand. Sweden, for example, is only a small steel producer but has built a global reputation in high quality specialist steel products, including tool steel, high speed steel, ball bearing steel and carbon steel. </p>
<p>It is important to recognise that many Australian steels are world class, which allows a broad range of steels to be used in fabrication work. There are also benefits to be realised by combining structural steels with high strength concrete. Australia leads the world in the production and utilisation of cold formed steel, steel decking and coated steels. </p>
<p><a href="https://theconversation.com/five-things-about-innovation-australia-can-learn-from-other-countries-50966">Public policy</a> has a part to play in facilitating this transition for the steel industry through the development of management and innovation capability, opportunities for research collaboration and local participation in large infrastructure projects. </p>
<p>The Government’s <a href="http://www.innovation.gov.au/page/agenda">National Innovation and Science Agenda</a> is not supposed to be just about startups but industrial transformation. Steelmaking, like manufacturing generally, should not be written off. It is critical to Australia’s technology and knowledge-based future.</p><img src="https://counter.theconversation.com/content/57436/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hamilton Howard received funding from the Commonwealth Department of Industry in 2012 to report on ways in which the steel fabrication sector can obtain! greater! access to knowledge generated through research in Australian universities and research organisations in order to drive innovation as the foundation for improved productivity, competitiveness,and energy efficiency.
John is a Director of Howard Partners Pty Ltd, a public policy research and advisory firm specialising in science, research and innovation policy. </span></em></p><p class="fine-print"><em><span>Roy Green does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Steelmakers like Arrium need to move away from commodities and invest in steel products in growth industries.Roy Green, Dean of UTS Business School, University of Technology SydneyJohn Hamilton Howard, Adjunct Professor, UTS Business School, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/574142016-04-07T20:07:14Z2016-04-07T20:07:14ZA grim future for Arrium, Ford and Queensland Nickel workers?<figure><img src="https://images.theconversation.com/files/117809/original/image-20160407-10027-1cjbzqy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Whyalla Steelworks, where workers might lose their jobs as operator Arrium goes into voluntary administration.</span> <span class="attribution"><span class="source">Wayne Thomas/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>The <a href="http://www.oecd.org/employment/back-to-work-australia-9789264253476-en.htm">OECD</a> report Back to Work Australia makes some grim predictions for workers who lose their jobs. That is the potential threat facing some 7,000 Arrium employees, those at Queensland Nickel and Caterpillar in Tasmania, and next year, workers in Ford’s plants in Geelong and Broadmeadows, Victoria.</p>
<p>The report was released just before the announcement that mining and materials company <a href="http://www.afr.com/business/manufacturing/focus-now-moves-to-arrium-breakup-20160406-go0cp0">Arrium is going into voluntary administration</a>. The company operates the Whyalla Steelworks in South Australia, a state hit hard by the <a href="https://theconversation.com/moving-on-holden-closure-shows-we-need-a-new-growth-agenda-21360">closure of Holden’s vehicle manufacturing plant</a>.</p>
<p>The OECD report says Australia faces a high incidence of job loss due to plant downsizing or closure (at 2.3% of the workforce per year). Based on analysis of data from the <a href="https://www.melbourneinstitute.com/hilda/">Household, Income and Labour Dynamics in Australia (HILDA) Survey</a>, the OECD suggests that 30% of those who lost their jobs in recent years were still unemployed after 12 months and another third had moved into to less well-paid and less secure employment. </p>
<p>Surprisingly the OECD sees this as suggesting Australia’s “flexible” labour markets are “rather successful at providing new jobs relatively quickly”. However, HILDA data is unlikely to capture the outcomes of workers in concentrated large-scale closures, so this may underestimate the magnitude of the problem. </p>
<p>The OECD also notes that Australia’s spending on labour market programs is weak by international standards, at a modest 0.01% of GDP (compared to say Denmark’s at 0.98%). It finds that social stigma makes job seekers unwilling to access employment services, that the <a href="https://www.employment.gov.au/jobactive">jobactive</a> framework discourages training and that the payment system to providers rewards short-term placements that lead to labour market churning. </p>
<p>The report questions the utility of targeted labour adjustment programs such as the Structural Adjustment Fund that assisted South Australia’s<a href="https://theconversation.com/mitsubishis-silver-lining-for-holden-workers-21425"> Mitsubishi</a> workforce in 2004. After reviewing these programs the OECD concludes that in Australia labour adjustment programs:</p>
<blockquote>
<p>“coverage is arguably inequitable and potentially wasteful as it provides automatic access to employment services to all displaced workers in a particular sector or region, irrespective of whether the worker needs help, while excluding other displaced workers who have an equal or greater need for such services merely because they were employed in different sectors or regions.” </p>
</blockquote>
<p>The OECD recommends that Australia move away from targeted assistance programs for large-scale closures towards a universal approach covering all sectors of the economy, with the intensity of intervention “varying according to the workers’ needs”. </p>
<p>This recommendation underplays the benefits of targeted labour adjustment assistance. If a plant closure releases hundreds or thousands of workers with similar skills into a small local labour market, the competition for work is concentrated and intense. Many workers will be forced to accept jobs in new occupations – often with a loss of pay, seniority and skill. Some will have to retrain or relocate to places where there are more opportunities. </p>
<p><a href="https://theconversation.com/moving-for-work-not-the-panacea-the-government-seeks-29745">Relocation</a> is not an option for everyone. Programs need to be targeted to local circumstances. </p>
<p>If job losses eventuate in isolated Whyalla, there will a greater demand for relocation assistance than, say, for Ford workers in Geelong, where workers can potentially access the greater Melbourne labour market. In addition, local labour adjustment programs make it possible for local organisations to contribute to revitalisation efforts. </p>
<p>Payments are made to people undertaking retraining help to maintain the demand for services in affected regional economies. Targeted assistance is not wasteful because the workers who do not need assistance do not access assistance. </p>
<p>There are economy-wide benefits from labour adjustment programs. Less skilled workers tend to search for work in their local area, while highly skilled workers might look to national or global opportunities. </p>
<p>How successful their search is depends on individual skills and attributes, household responsibilities, and the play of wider processes of labour supply and demand. Because there are so few suitable job opportunities for them, the workers whose careers are most damaged by large-scale closures are likely to be highly skilled and specialised workers with long tenure with one employer. The value of these workers’ skills to the economy warrants investment in preserving their skill base. </p>
<p>The OECD recommends establishing local pilot schemes for intensive employment services, increasing employers’ responsibilities in retrenchment by demanding longer notice periods and mandatory Centrelink notification, and instituting policies that encourage firms to limit dismissals during temporary downturns. It also advocates better research follow-up of retrenched workers’ outcomes. </p>
<p>These are all positive steps. Sadly, however, the OECD does not suggest offering employer incentives to stimulate demand for the labour of retrenched and other jobless workers.</p><img src="https://counter.theconversation.com/content/57414/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sally Weller's labour market research has been funded by the Australian Research Council and the Victorian Government</span></em></p>The outlook is not good for those who may lose their jobs as a result of mining company Arrium going into voluntary administration, according to the latest OECD report.Sally Weller, Australian Research Council Future Fellow, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.