Future of Whyalla steelworks needs to be guaranteed | Alexander Downer

We have all the resources to make steel on our doorstep, but environmental fantasies mean we can’t make it pay, writes Alexander Downer.

The Whyalla steelworks was in serious need of saving from the SA government, Alexander Downer writes. Picture: Brett Hartwig

The South Australian Government was right to put the Whyalla steelworks into administration and for the administrators to search for a new owner.

GFG Alliance were no longer able to afford to run this strategically important business.

And I say important business because it produces 75 per cent of Australia’s structural steel and also railway lines.

More than that, if the steelworks were to close then the impact on the city of Whyalla and its 22,000 residents would be devastating.

As I’ve written before, it would be the equivalent for the morale and psychology at the state of the collapse of the State Bank.

And it is understandable that the federal government has come to the rescue with the $2 billion support package.

That is a massive amount of money to keep the steelworks going but the continued operation of the steelworks should now be guaranteed.

So don’t get me wrong. I think it’s a good thing that steelworks is going to survive.

If you’re more concerned about climate change initiatives then you won’t agree with me. After all, the Whyalla steelworks has a blast furnace which is a major emitter of CO2.

Tim Wendland, a Whyalla local butcher farewells Sanjeev Gupta after it was announced the steelworks went into administration. Picture: Tim Joy

It is estimated a blast furnace produces between 1.8 and 2 tonnes of CO2 for every tonne of steel produced.

If this steelworks were to close then our state would take one giant step towards meeting net zero by 2050.

Not that doing so would affect the weather but it sounds virtuous.

So let’s just understand what the consequences for the state would be of those who think reducing our emissions is more important than keeping people in work and generating sustainable living standards.

There is a plan for the Whyalla steelworks to produce green steel: that is using an electric arc furnace to recycle steel instead of producing virgin steel from iron ore.

Since an electric arc furnace uses vast quantities of electricity, this electricity was to be generated from a green hydrogen power station.

Now that the government has scrapped its green hydrogen initiative, it’s more likely that the power station will be gas driven.

But anyway, the electric arc furnace would emit less CO2 than the current blast furnace although how much less would depend on how the electricity was made.

What concerns me about the reporting of this saga is twofold.

First, there is no analysis as to why the steelworks has been troubled for so many years.

Why is it with all the natural resources available for steel making on our doorstep that we cannot produce steel profitably?

We are the world’s largest producer of iron ore and have vast quantities of high calorific coal - two essential ingredients for steel making.

And why does a steelworks which produces 75 per cent of structural steel for the Australian market not make any money?

It’s true, GFG Alliance had their own specific financial problems. But that is not the whole story.

The cost of making steel in Australia has become prohibitive.

That is partly because the price of electricity is now twice as high as the price of electricity in the United States.

We have cheap coal, massive reserves of gas and we have among the highest electricity prices in the world.

Think about it. We have all the natural ingredients for steel making but we can’t make it pay.

We’ve loaded up our cost structure with a welter of climate change initiatives.

We were promised that with windmills and solar panels the cost of electricity would come down.

In truth, everywhere where this has been done it has risen. And quite dramatically. That’s because with intermittent power you need a backup system and the backup system – gas or nuclear – is pretty expensive.

So what happens? Steel making has increasingly moved to countries with lower energy costs such as China or even the United States.

Yet steel is still needed because we can’t build buildings, construct bridges and run transport systems without it. So although we will reduce our CO2 emissions by closing these industries, the global effect will be non-existent because the steel will just come from somewhere else.

It’s nuts.

Secondly, to retain the steelworks, the federal government is going to borrow $2 billion. That’s on top of the $8.5 billion they promised last week for Medicare and the tens of billions of dollars of other election bribes.

All this will have to stop one day. It’s just recklessly pursuing policies which have been tried in Europe over the last 20 years and have spectacularly failed.

When it comes to the upcoming election, politicians shouldn’t treat voters as mugs.

We know money doesn’t grow on trees.

We know we can’t keep running deficits and accumulating ever expanding debts passing them on to the next generation to worry about.

So we need candidates who will abandon the absurd formula of pouring subsidies into industries made unprofitable by the fantasy that windmills and solar farms will change the weather.

Originally published as Future of Whyalla steelworks needs to be guaranteed | Alexander Downer