Darryl Gobbett: Whyalla’s troubles a warning for whole SA economy

SOUTH Australia can’t afford to let the Arrium Whyalla steelworks fail. Its fate is not just critical for the future of Whyalla; its survival is of enormous national, state and regional SA importance.

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SOUTH Australia can’t afford to let the Arrium Whyalla steelworks fail. Its fate is not just critical for the future of Whyalla; its survival is of enormous national, state and regional SA importance.

SA and Australia needs a steel industry for our future economic prosperity, and Whyalla has an integral role to play. Rescuing the steelworks therefore needs a co-ordinated local, state and national response. Too many jobs are at risk — not just in Whyalla but across the state.

The broader economic, social and confidence impacts here in SA would be substantial, with several thousand direct and supplier jobs expected to be lost. State and federal funding will be needed but with the focus on the steel division, with a possible spin-off into a separate company.

The steelworks, however, won’t survive over the long term on federal or state financial support. Nor can survival be achieved simply by changes to federal, state and local government procurement policies — necessary as these will be.

Government investment and steel-buying orders need to be part of a broader rescue package that will put the steel- making operation back on a sustainable path.

Do this and it will be taxpayer money well spent. It can’t be a cheap fix, either, and must take into account all the global market forces at play.

Whyalla is competing with much larger and more modern steel-production facilities in countries like Japan, Brazil, India and China. There is also a very large global steel oversupply, with some estimates putting this at about 25 per cent of current global capacity. China announced in January cuts to steelmaking capacity of 100-150 million tonnes, about 17 per cent of its total, with the loss of some 400,000 jobs.

The question is not only how Whyalla can be rescued, but how it can be resurrected and remodelled to take on these global behemoths.

Whyalla does have a natural competitive advantage, having access to some of the best quality iron ore in the world and being on the sea.

But turning raw materials into steel and selling in competition with very large producers in a globally oversupplied market is another story. We’ll also need to address the other structural hurdles facing the business.

Reducing costs and generating greater efficiencies at the plant will be just as important to improving the bottom line and a long-term future.

The Whyalla operation would be a significant user of electricity and water, and at a higher cost than for overseas competitors. Wages and payroll taxes would also be higher.

Other fuel and supply costs, such as interstate transport and construction costs for new steel plant would also be higher than they are overseas. Reducing these regulatory costs, and introducing policies that promote more efficient and cheaper energy and water supply across SA, has to be an urgent consideration for governments at each level.

Smarter investments in infrastructure are also needed, such as improving regional transport routes to allow companies such as Arrium to get their products to interstate markets at lower cost. Reducing payroll tax can only help our companies compete with overseas operators. Whyalla’s troubles are a warning shot across the bow of the SA economy. This is the wake-up call we need to address the various issues facing the business sector as a whole across our state.

It is not a time to play politics. If we don’t bite the bullet and act now to improve the restrictive costs of doing business in this state, Arrium’s plight will be contagious.

Darryl Gobbett is the Chief Economist at Baillieu Holst