How BlueScope benefits from a Whyalla steel millstone

BlueScope Steel’s Mark Vassella. Illustration: Sturt Krygsman

The closure of the Whyalla steel blast furnace would be a net benefit for Bluescope’s Mark Vassella, so the only way he would take control – as mooted by SA Premier Peter Malinauskas – would be for a truckload of cash and bankable political brownie points.

BlueScope has already pocketed plenty of government handouts and now faces the embarrassment of a US anti-dumping investigation but the Whyalla saga has plenty of turns left.

The US Commerce Department is due shortly to decide whether to formally investigate complaints lodged on September 5 by the US industry on imported coated steel products.

Sanjeev Gupta has the Whyalla plant ringfenced from his other Australian operations so any financial collapse would not legally affect Infrabuild et al. but there is reputational risk and of course the company has already been forced to import steel billets to offset the loss of supply during Whyalla’s lengthy closures.

If the Whyalla works shut it would strengthen Vassella’s Port Kembla operations, because another rolling steel mill could be added to run extra product suitable for long-product needs.

This would soak up excess capacity and save the extra capex needed to keep the aged Whyalla mill alive.

The ACCC would, after a close look, probably clear a BlueScope purchase of Whyalla on the argument it makes different products, selling to different markets. If the alternative were to close the mill there would be national interest benefits keeping its 1000 workers in jobs and the city alive.

It’s a lineball decision combining two monopolies, but a merger which arguably would not further entrench Vassella’s market power (it’s already a monopoly supplier).

There is of course import competition, when foreign mills can dodge the hundreds of BlueScope and Infrabuild dumping complaints.

In 2000 when BHP jettisoned its steel operations, then steel boss Bob Every recommended it start with the Whyalla-based long-product maker, to be known as OneSteel, chosen with a value at $2bn to which the company added $1bn in debt.

BHP didn’t want to sell all its steel assets at once because it didn’t want to shrink its asset base too much, but that concern disappeared with the Billiton merger.

Every was tasked with the job of running OneSteel and two years later, in the wake of the Billiton merger, the remaining assets were sold as BlueScope making flat products.

Before the OneSteel split, BHP had to make a decision whether to close Newcastle or Whyalla – and chose the former, which shut in 1999. What swung the balance in favour of Whyalla was not the quality of its assets, which were old and undersized, but politics.

The Whyalla mill was crucial to the regional city, which was then the second city in South Australia and BHP thought it was too much of a hot potato to close.

The jewel in the crown was the former Lysaght coated products marketed as Zincalume – the same product which is now subject to a US dumping complaint.

Australia (BlueScope) is one of 10 countries cited with hefty potential duties given the alleged dumping rate was as much as 51.4 per cent.

BlueScope volumes were small at around 54,000 tonnes in the first half of this year, valued at $US56.4m out of $US2.1bn in coated steel cited in the complaint from the US industry.

The complaint comes as world steel prices have slumped and Chinese oversupply threatens to swamp the global market.

BlueScope won tariff concessions in the US but this doesn’t apply to anti-dumping duties.

In Australia, industry volumes are down around 25 per cent for long products, which are linked to housing, construction and infrastructure, and 15 per cent for flat products.

Dumping comes when a product is exported at below the normal price in the country of origin and causes injury to the local industry.

BlueScope and Infrabuild are the biggest complainants to the Australian Dumping Authority accounting for 80 per cent of complaints.

The complaints have come even when the former has produced record profits in recent years which makes a nonsense of the “injury” test.

If Sanjeev Gupta dropped out of steel making then he would not need to make dumping complaints, so the ballpark would be all BlueScope’s Mark Vassella.

Its early days and Gupta’s negotiating and financing skills are legendary

In the meantime for Vassella it’s not a great look for the biggest dumping complainant in the nation to be under investigation in the US.

No float plan yet for powerline tech leader

Brisbane-based Noja Power boss Neil O’Sullivan has ruled out an imminent float, telling The Weekend Australian “there are no current plans” as the company that he thinks is worth over $1bn, powers ahead.

Speculation the 23-year-old company would hit the bourse increased earlier this year after Ashok Jacob’s Ellerston acquired a 12 per cent stake when one founder Jay Manne sold down his position.

Jacob has positioned himself as a growth capital provider and arguably no-one is better placed for that than Noja, which earns 88 per cent of its revenue outside the country and whose equipment is now in power lines in 106 countries.

Noja makes medium voltage switch gear, including auto-reclosing circuit breakers.

It started when a predecessor company, Nulec, was acquired by France-based Schneider Electric and O’Sullivan and fellow founders Quynh Anh Le, Manne and Oleg Samarski set out to make sustainable electricity switching gear.

Renewables were not front page news at the time but O’Sullivan and his team saw the need for switching gear to be able to handle two-way traffic from the generator to the user and back.

The product uses specialist sensors to detect small changes in current which may result in a fault so the line is closed and opened – much as you may do at home when a fuse breaks.

Some 80 per cent of overhead electric line faults are transient and Noja’s switching gear helps fix the problem before the customer realises it.

His latest product, Eco Link, replaces the greenhouse gas SF6, sulphur hexafluoride, which is a cooling device used for protecting electrical power systems from short circuits and overload conditions.

Noja doesn’t have the game to itself, competing globally with giants like ABB, Schneider, Siemens and Hughes Power, but its team of around 65 people in research and development has kept it at the front of the pack as is clear by its growth.

In a sector where Australians have done well in software as a service, it is a genuine manufactured hard asset. Plants in South Africa, Brazil and Mexico underline the global nature of the business.

The textbooks say “x” per cent of revenues should be spent on R&D but Hamilton instead works by drawing up plans for what is needed.

Having had the vision to produce equipment for the renewables age he unsurprisingly thinks Australia is batting above it peers in the sector.

Noja recently won an award as the Queensland exporter of the year, adding to its tally of gongs, but for Hamilton it’s all part of the relentless drive using Australian intellectual property to help protect national electricity grids.