Domestic steel manufacturing in Australia has no long term future, according to an analyst report that describes the closure of BlueScope’s Port Kembla steelworks was a matter of ‘not if but when.’

In a research note to clients following reports that BlueScope could exit steel manufacturing over the next few years, Credit Suisse analyst Michael Slifirski has described the closure of the plant as being a foregone conclusion, and has told clients in a research note that the future of the local steel manufacturing industry is bleak.

“In the medium term, we foresee a BlueScope exit from Australian steelmaking achieved on a cash neutral basis, leaving a profitable metallic coating and painting business,” the research note says according to News Ltd reports.

“Domestic steelmaking does not appear to have a future, so the key question is how does BlueScope exit this business.”

Slifirski’s comments follow earlier reports that BlueScope planned to cease steel manufacturing completely at its Port Kembla plant.

Although these were denied by the company and the Australian Worker’s Union, both acknowledge that the company was engaging in large scale cost-cutting to reduce the cost of steel manufacturing by at least $50 per tonne, and the union has said that up to 1,000 jobs could be directly affected.

Notwithstanding the recovery in residential construction, the steel manufacturing industry in Australia continues to be hammered by weak global prices as overproduction from China and elsewhere in Asia continues unabated.

Silfirski said loss-making exports continue to increase despite significant cost cutting and restructuring efforts on the part of steel makers in recent years as the domestic manufacturing base declined.

Any closure of the industry would obviously see the construction sector in Australia become entirely dependent upon imported product, which could also lead to growing volumes of products which do not comply with Australian standards.

The issue of dangerous non-compliant products being imported from overseas has been highlighted in recent months after non-compliant cladding was found to have caused the vertical spread of a fire at a Docklands apartment complex which resulted in the evacuation of more than 500 people.

  • We're not a manufacturing destination anymore but an advanced tertiary economy – why should steel production even matter?

  • It will be a short sighted engineering, construction and manufacturing sector which does not support the niche steel making product lines that are left. The productivity improvements achieved now place them as borderline profitable and sustainable, only the craving for another 5 or 10% price drop, without proper discernment of the broader costs and compliance will tip it over the edge.

    If what remains does go, I predict that the market price for steel will then increase above the levels which would have guaranteed survival of the local industry anyway, as imported alternatives currently need to be cheaper due to not achieving the quality standard or availability on a consistent basis as the local supply benchmark.

    Loss of further fundamental capabilities and self sufficiency will negatively impact the future in many ways thanks to short term single bottom line thinking. $50 a tonne of steel does not make or break a project and is often quickly overtaken by costs of delays, difficulties in use and non-conformance.

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