Australia would become dangerously dependent on China for imports of long steel products if the Whyalla steelworks were to fail, a new report has warned.

On the same day as the South Australian Government has placed the owner of the Whyalla steelworks in administration, research body the McKell Institute has warned that the failure of the facility would have widespread consequences.

(update:  on Thursday, the Commonwealth and South Australian Government’s have announced a $2.4 billion support package for the steelworks.)

“The Whyalla Steelworks Australia’s is the only manufacturer of ‘long steel’ products which are core inputs into Australia’s transport, construction and manufacturing industries,” Ed Cavanough, CEO of The McKell Institute said.

“They are even more crucial as Australia confronts burgeoning public infrastructure projects and a housing crisis, and aspires towards a manufacturing resurgence.

“If Whyalla steel fails, Australia would become dependent on imports for long steel. That would leave us completely exposed to coercion from strategic adversaries. We had a taste of what this looks like in 2021, when the Chinese Government imposed tariffs and trade restrictions on key Australian export sectors.

“Australia’s defence capacity and national security depend on the Whyalla Steelworks – its output means Australia can better respond to strategic emergencies, is less exposed to supply chain disruptions, and can resist coercion by adversarial trading partners.”

The report came on the same day as that South Australian Government appointed KordaMentha as administrate of One Steel Manufacturing Pty Ltd.

OneSteel is part of the GFG corporate group and is the legal entity that owns and operates the Whyalla steelworks and associated mines.

On Thursday, a $2.4 billion funding package was announced. The funding will help to ensure that the steelworks is able to continue operating throughout its period of administration, pay its creditors and invest in new infrastructure that would help to ensure the facility’s viability over the long term.

The government said it had lost confidence in the capacity of GFG to pay its bills as and when they fall due as the group struggles with significant debt challenges in its global operations.

The government had equally lost confidence in GFG’s ability to secure funding that is needed for the ongoing operation of the steelworks.

Located in Whyalla in South Australia’s Upper Spencer Gulf Region, the Whyalla steelworks is a critical asset for Australia’s economy, strategy and security.

As things stand, the Steelworks is one of only two major integrated producers of crude steel production in Australia (along with a plant in Illawarra provided by BlueScope) and produces around three quarters of Australian structural steel.

Whyalla is also Australia’s only manufacturer of ‘long-steel’ products. This includes rail products, rod and wire reinforcement and structural beams. These products are core inputs into Australia’s transport, construction and manufacturing industry.

However, the facility’s long-term future has become the subject of increasing concern as successive owners have failed to deliver a suitable long-term plan or to come through with promised large capital investments.

This has allowed the physical state of the assets to decline.

Such concerns have become increasingly urgent as the financial position of the GFG Alliance has been the subject of considerable uncertainty.

In relation to Whyalla itself, the company owes about $15 million in unpaid water bills in addition to tens of millions of dollars in unpaid mining royalties.

According to the report, the collapse of the Whyalla facility would leave Australia as one of the very few advanced economies that did not have any capacity to produce long steel products and would leave us entirely dependent upon imports.

In particular, with almost forty percent of the nation’s long-steel imports coming from China (see chart), any failure of Whyalla would leave Australia dependent upon China for its long-steel supply.

This would have serious consequences.

First, imported products vary in terms of their location, quality and environmental footprints.

Reliance upon these products may therefore jeopardise the quality, safety and environmental performance of the nation’s buildings and infrastructure.

Second, reliance upon overseas countries for long-steel products could leave our nation heavily exposed to trade disruptions from either international crises (such as COVID) or coercion.

This, the Institute warns, should be taken seriously.

For several years, the Chinese Government imposed tariffs and trade restrictions on Australian exports.

It would not be far-fetched, the Institute warns, for China to withhold critical imports during a future diplomatic or trade dispute.

Third, the Whyalla steelworks is ideally positioned to deliver mass, carbon-free green steel – a key part of the Commonwealth’s Future Made in Australia program. Allowing Whyalla to fail would therefore be a significant blow to this program.

Finally, the Institute warns that the collapse of Whyalla would have serious implications for Australia’s defence capability.

This would occur as an inability to product long steel products would affect the movement of military equipment and personal across Australia in times of conflict.

More generally, the inability of the nation to maintain and expand its nation-spanning rail network would undermine the nation’s ability to respond to a wide range of strategic emergencies.

Should Whyalla fail, meanwhile, the report also warns that Australia would be unlikely to have the capacity to reestablish a long-steel products industry in the near-term future. This would be the case as the 4,000 -strong workforce which underpins Whyalla and its surrounding ecosystem would be disbanded.

(image source: Kell Institute)

In response, the McKell Institute has suggested that the Commonwealth and South Australian Governments should take temporary control of the facility through nationalisation in order to recapitalise the asset and perform necessary maintenance.

Following this, the governments would try to fine an appropriate private buyer and would seek long-run assurances about maintenance and production volumes.

Instead, the South Australian Government has chosen to place the facility’s owner OneSteel into administration whilst the Commonwealth and state governments have announced a support package referred to above.

It says that the government and the administrator will work proactively to stabilise operations.

Longer term, the government and the administrator will explore a possible sale to a new owner in a way that would keep the asset together and would keep the steelworks operational.

South Australian Premier Peter Malinauskas said that the the government had taken strong and immediate action to secure the long-term future of the steelworks.

“For months, my government has been carefully planning a strategy to address the challenges unfolding at the Whyalla Steelworks, Malinauskas said.

“Throughout that period, we gave GFG every opportunity to make good on its promises and to bring creditors back into terms. It has failed to do so.

“So today, we have acted.

”GFG is no longer running the Whyalla Steelworks and associated mines.

“The South Australian Government has intervened. The steelworks is now in the hands of an administrator, who will stabilise operations and explore a possible sale to a new owner.

“This is a significant step, and one we do not take lightly. But it is a necessary one to secure the long-term future of Whyalla.”

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