Grant Johnston, managing director of Best Bar, spoke to journalists recently about his concerns regarding the future of the Australian reinforcing steel industry following the federal government’s proposals to introduce more protectionist measures. Grant believes that if local content laws are approved – laws which would oblige reinforcing steel manufacturers such as Best Bar to source all of their raw materials from Australian producers in the future – his company and many others will suffer.
The idea behind the proposed regulations, that of supporting Australian industry, is a sound one but the unfortunate truth in this particular case is that there is only one steel mill in the country and it is owned by Arrium, a company that recently went into voluntary administration due to financial difficulties. What this means is that any local content laws forcing companies such as Best Bar to source their steel from Australia will produce a monopoly, something that is undesirable in any industry or market sector, especially one where the beneficiary of the monopoly is currently in administration.
The higher prices resulting from having to buy steel from a sole producer will drive up prices of new construction, which could negatively impact the government, and companies in the resource sector, i.e. the very organisations that are pushing for the introduction of the protectionist laws.
Companies such as Best Bar, which employs 300 people in various locations across the country, could be the first in the firing line if the proposed local content requirements are passed into law, especially as they are already fighting steel tariffs imposed on their Singaporean supplier, NatSteel, as part of the government’s anti-dumping measures. Both Best Bar and NatSteel believe the tariffs have been unfairly levied and the sad fact is, studies in other countries have shown than such tariffs cost more jobs than they save. In the USA, it was found that every job saved by protectionist duties in the steel-producing industry came at the cost of 3 jobs in industries that used the steel in question. The artificial markets created by protectionist measures invariably hurt the very economies that the measures seek to protect, a fact that companies like Best Bar hope the government realises before it is too late.
What seems particularly unfair in this case is that Arrium’s financial difficulties stem from its unprofitable steel mill in Whyalla, which has nothing to do with the electric arc furnaces where it produces the reinforcing steel used by companies like Best Bar. What seems to be happening is that the problems at the steel mill are being used as an excuse to request measures that will protect Arrium’s reinforcing steel business as well: a business that is already doing very well, with an 80% share of the market in Australia.
Whether or not the protectionist measures are approved, the blast furnace at Arrium’s Whyalla facility will need relining in a few years’ time and given that this will cost from $200 to $400 million, any respite from its financial difficulties that the company may enjoy as a result of the proposed protectionist tariffs is likely to be short lived.