Key Points Downstream Beneficiation Case Study: Australiaccsi.columbia.edu/files/2013/10/Australia__Iron-ore... · 2017-09-29 · Downstream Beneficiation Case Study: Australia 3

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KeyPoints

TableofContentsKeyPoints......................................................1Introduction..................................................1SteelIndustry1915-1945.....................2SteelIndustry1945-1960....................5IronOreExplorationandProduction1960-1970.....................................................6SteelIndustry1970-1990.....................9SteelIndustry1990-2000..................11SteelIndustry2000-2015..................15 Benefits.........................................................15KeyConclusions.......................................17Appendix1..................................................18Bibliography..............................................20

Introduction

Australia was chosen as a downstream beneficiation case studybecauseithassignificantreservesofbothcokingcoalandironore,aswellasevidenceofbeneficiationactivitiesdatingbacktothebeginningofthe20thcentury.WhatalsomakesAustraliasuchaninterestingcasestudy,withregard tobeneficiationactivities, is that,despite thegreatabundance of raw inputs that are consideredkey ingredients to steelproduction, Australia did not develop its steel production capacitymuchbeyondthatneededtoservicethedomesticdemand.However,ithas been able to fully develop as a nation on a commodity basedeconomy without experiencing the “resource curse”, and today isconsidered one of the more advanced countries in the world.Australia’s lack of further downstream activities is not for a lack oftryingandthegovernmenthastakenasignificantnumberoflegislativeandpolicybasedapproachesinordertofostergreaterbeneficiationofironore.Inspiteoftheseefforts,thegovernmentinterventionsappearto be a bust, with Australia’s share of the world crude steel marketexpected to further shrink by 20% by 2018.1The story of Australiabegsthepractitionertoaskthequestion,“docountriesneedtopursuedownstreamactivitiestodevelop?”

For the purpose of this case study, a historical overview of the steelindustry will be conducted with a lens on iron ore beneficiationactivities. Special attention will be paid to government interventionsthathavebeenaimedatincreasingbeneficiationactivities.

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JaredTalkin1,2March2016

1 Jared Talkin is a research fellow at the Columbia Center on Sustainable Investment.

2 The author would like to thank Perrine Toledano and Nicolas Maennling for their insight and guidance during the course of this project. Also, the author would like to thank David Doepel for his review of this casestudy.

CCSIPolicyPaper

DownstreamBeneficiationCaseStudy:Australia

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The increasingly globalizedsteel market, global overcapacity, and the finical crisishavealldealtthedeathknelltotheAustraliansteelindustry.

Australia was successful inestablishing a steel industrythat fully met the domesticdemand for steel for well over80 years. This was aided bystrong governmentintervention throughout thehistory of Australia’s steelindustry.

Recent efforts by thegovernment to force BHPBilliton and Rio Tinto to movedownstream have failed. Whilegovernment interventionworkedwell early on, the steelexportmarketneverreallytookoff in Australia, due in part tothe protections afforded to thesteelindustry.

Location and access to rawmaterials played a key rolewhen the steel industry wasestablished to supply thedomesticmarket.


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SteelIndustry1915-1945

TherootsoftheAustralianironandsteelindustrycanbetracedbacktothebeginningofthe20thcentury.In1915, BrokenHill Proprietary’s (BHP) Newcastle ironworks began production,marking the start of themodernphaseoftheAustralianironandsteelindustry.iPriortothecommissioningoftheNewcastleplant,theonlysignificantironorebeneficiationoccurringinAustraliawasconcentratedintheLithgowvalley.Thevalleywasfoundtohavedepositsofcoalinthe1800’s,easilyaccessiblethroughshortshaftsortunnels.Toexploitthecoalfields,arailwaylinewasestablishedtherein1869connectingSydneytoLithgow.Thesteelindustrysoonfollowedduetothefactthattherewasareadilyavailablesupplyofcoalandadequateaccesstotransportationfromtherailroadprovidingaccesstomarketsforthefinishedproducts.Thisisafamiliarstorythathasbeenrepeatedoverandoverinthehistoriesof industrialrevolutionsexperiencedbymanycountriesduringthistimeperiod.

In addition to the rapid industrialization that was occurring in Lithgow as a result of the rail roadinfrastructureandpresenceofcoaldeposits,thegovernmentinitiatedtwoschemesthathelpedtocatalyzethedevelopmentoftheironandsteelindustry.First,in1905acontractwasobtainedfromtheNewSouthWalesgovernmentbytheLithgowsteelworksforthesupplyofitsironandsteelneedsforaperiodofsevenyears,whichresultedinanewblastfurnacebeingerectedandthecommencementofpigironproductionin1907 (Appendix 1).iiThen, in 1909 the government passed an act to encourage manufacturing in NewSouthWales,whichfurthercatalyzedtheexpansionofthesteelindustrythere.Underthisact,contractorsthat supplied steel to the governmentwere eligible to receive generousbountieson ironand steelmadefromAustralianores(Appendix1).iiiThisledtotheLithgowplant,ownedbyHoskinsIronandSteel,tobemodernizedandexpandedinordertotakeadvantageofthenewstateimplementedbountysystem.Inorderto support the increased production at Lithgow, new iron ore depositswere opened up alongwith newcollieries tosupplycokingcoal.This illustrateshowthecreationofaguaranteedmarket forsteelatasetpricetodomesticproducershelpedtogrowandmodernizetheminingandsteelsector.Despitetheinitialindustrial growth that Lithgow experienced, its distance to the ports (nearly 300 km), low capacity, andrudimentarysmeltingoperationspaledincomparisontothenewlyestablishedplantinNewcastle.

TheNewcastleplantwasa large-scaleoperationbuiltusingAmericandesignsandwassitedbasedon itsaccessibility to markets, proximity to rawmaterials, availability of labor, and costs of transport.ivWhilecokingcoalwasavailablelocally,ironorewasbeingshippedviamarinetransportover1500milesfromtheMiddlebackRange in SouthAustralia (seeMap1 below). This negated the need to transport the ore viacostly rail infrastructure.Marine transportwas cheaper than raildue to the costs associatedwith capitalinvestment that goes into building rail infrastructure. The Newcastle plantwas opened at an opportunetime,asWorldWar1hadjustbegun,whichresultedingreatlyrestrictedimportsofsteelwhileatthesametimetherewasadomesticdemandforsteelinputscreatedbythelocalarmamentsindustry.Theendofthewar(in1918)broughttheresumptionofsteelimports(in1919)backintotheAustralianmarket,atwhichpointthegovernmentsteppedinandimposedhighprotectivetariffsonimportsofironandsteel.TheTariffActof1921(Appendix1)waspassedbythegovernmentto,notonlyprotectthelargersteelproducersinNewcastleandLithgow,but toalsoensure thecontinuedexistenceof thenumeroussecondary industriesthathadbeenestablishedduringthewaryears,manyofwhichwereestablishedassubsidiariesofBHPorthroughagreementswiththesteelmaker.vThisprotectionistactionbythegovernmentallowedtheironandsteelindustrytosurvivemeeklyduringthe1920’sandfurtherrationalizetheiroperations.viInadditiontothe implementation of the Tariff Act of 1921, the government also passed the “Iron and Steel ProductsBountyActof1922,”withbountiesbeingpaidonfencingwire,galvanizedsheets,wire-netting,andtraction


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Map 1. Significant of Sites for Iron and Steel Industry Circa 1940

ThismapdepictskeysitesassociatedwithironandsteelindustryofAustraliacirca1940.

enginesmade inAustralia.viiThiswasaimedat furtherprotecting thesecondary industries thathadbeenestablishedduringthewaryears.

By1927,thetotalannualoutputofironandsteelatLithgowhadonlyreachedamaximumof120,000tons;thispaledincomparisonwithNewcastle’sproductionof416,533tonsofpigironand387,929tonsofsteelingots for the sameyear.viiiBy thispoint,Hoskin Iron andSteel haddecided to erect anewplant atPortKemblathatcouldrivalBHP’sNewcastleplant,itssoledomesticcompetitor.HoskinIronandSteelformedAustralianIronandSteelinordertoestablishtheironandsteelworksatPortKemba.

PortKemblawaschosenas the location for thenewAustralian IronandSteelplant for thesamereasonsthat BHP chose Newcastle. The location had easy access to markets, close proximity to raw materials,availability of labor, and relatively low transport costs. It was sited less than 10 miles from extensivecoalfields,alreadyadeep-seaportabletohandleanimportandexporttrade,andwithinreachofthechiefmarkets of Australia. Port Kemba had advantages overNewcastle in other aspects. The company owned


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Graph1.TrendsintheIronandSteelIndustry1921-1930

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Illawarracoalmine,whichproducesabetterblastfurnacecokethanthatofNewcastle’s,thecompletionoftherailwaytoMossValemeantithadaccesstoanexcellentdepositoflimestoneflux,andtherewerelargereservesoflandadjacenttothesiteforfutureexpansion.ixThePortKembaplantwascommissionedin1928andtheworksatLithgowwereshutdownastheywereobsoleteandinneedofrepairs.

Conditions during the 1930’swhere characterized by adecline in labor costs,depreciated currency, hightariffbarriers,andareductionin the cost of coal. x Theseconditions were in the favorof the established domesticproducer, BHP. BHP becamethe dominant player in theironandsteelindustryduringthe1930’sthroughtakeovers,vertical integration,rationalization, andmodernization. Theconditions were ripe for theestablished and well-fundedBHP to flourish during thisperiod.Thenewlyestablishedand undercapitalizedAustralianIronandSteel,andits Port Kemba steel mill,were unable to weather theeffects of the GreatDepression (1930-1933) andwasacquiredbyBHPin1935.This essentially marked thepoint where BHP became amonopoly in domestic steelproduction for the next 6decades. In 1938,governmentimposedtheIronOre Export Embargo(Appendix 1) on the eve ofWorldWar II.Themotivatingfactor for thiswas topreventthe Japanese from importingore from Yampi Sound inWestern Australia. xi Anotherconsideration, whichunderpinned the retention of


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thebanformorethantwodecades,wasthegovernment’sperceptionthatAustralia'sironorereserveswerelimited.Thisembargoremainedinplaceuntiltheeasingofrestrictionsbeganin1960.By1939,theindustrywasverticallyintegrated,asBHPhadsecuredcoalminesclosetoitsNewcastleplant.ItisimportanttonotethatBHPhadownedtherights to the ironoredeposits thatsupplied itsoperationssince the late1800’s,whenitsprimarybusinesswasmininglead,zinc,andsilver.

In response toWorldWar II, theBHPdiversified its production capacity to include ferroalloys, tungstencarbide,andawiderangeofalloysteels,inordertosupplythewareffortsonbehalfoftheBritishEmpire.Theyear1941markedapeakinproductionof1.54milliontonsofpig ironand1.62milliontonsofsteelingots. The level of productionwas not reached again until 1952, the year that BHP established a thirdcenterofironsmeltingthrougherectionofablastfurnaceatWhyalla.Inadditiontotheblastfurnace,BHPalsoestablishedship-buildingyards.xiiWaractedasamaindriverforexpansiontoWhyalla,asitwasnotontheexposedeasterncoastand itwasnext to theMibbleback ironoredeposits. Itdidhavedisadvantages,suchasitwassituatedontheedgeofadesert,thuslackingfreshwater,andcoalandcokingcoalwouldhavetobeshippedtofueltheoperation.


Duringthepostwarperiod,thesteelindustryfellintoaslumpduetolabordisputes,whichhamperedtheabilityofBHPtocapitalizeoffoftheincreasingdemandsforironandsteeldomesticallyorproducefortheinternationalmarketsthatwerebeingstimulatedbypost-warreconstructionefforts.However,by1950thelabordisputeshadbeenmostresolvedandthe1950’smarkedaperiodofexpansionforBHP.

Followingthewar,BHPbegantogrowitsoperationsatPortKemblainordertoprovideironandsteelasfeedstockforprocessinginitsnewlyplannedflatproductsdivision.ThePortKemblaflatproductsplantwascommissionedinFebruary1954withthemanufactureofsteelplates,andthefirstrunofhotstripsteelwasproducedinMay1955.xiiiInadditiontoupgradingtheexistingoperationsatPortKembla,BHPdecidedtobuild another integrated steelworks on the site in 1954with the plan to include expanding the existingharborfacilities.Theprimaryobjectiveoftheproductionincreasewastoproducerawsteelfortherapidlyexpandingflatproductsdivisionthatwasinoperation.Inadvanceofthe2ndintegratedsteelmillatKembla,itwasdeterminedthattheportwouldneedupgradestoservicetheadditionalmillthere.ThePortKemblaharborenlargementproject,whichwascommencedin1954,wasundertakenthroughthejointeffortofBHPandtheNewSouthWalesGovernment.xiv

This is an excellent example of how a public/private partnership can help foster growth of downstreambeneficiation.Inordertosupplythenewintegratedsteelworks,extensiveorestoragebinsandaneworebridgewereconstructed.Thenewharborwasdesignedtoaccommodatetheanchorageofuptothirty-sevenshipssimultaneously,with itswharfbeingdesignedspecifically fororeandsteel logistics.TheNewSouthWalesGovernmentprovidedinitialcapitalinvestmentof£32million,withBPHprovidingtheremaining£80millionrequiredtofundtheproject.TheexpansionofthesteelworksatPortKemblacontinuedinOctober1956,withtwonewopen-hearthsteelfurnacesbroughtintooperation.Inadditiontothenewfurnaces,in1957an ironore sinteringplantwasbuilt tohandle the fine ironore thatwasbeing extracted atYampiSound inWesternAustralia.Also in1957,workcommencedon thebuildingofcokemanufacturingplant,which includedabatteryof-ninety-sixcokeovens.On topofallof theseexpansions incapacity,ahot-diptinplatemill atPortKemblabeganproduction in late1957,whichwas toprovide tin-plated steel for thedomesticcanning industry.PortKemblawasnotthesolebeneficiaryof improvementsduringthisperiod,however. Newcastle brought a new smelter online in 1958,whichwas designed to produce high quality


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steel strip for processing into tubes. Finally, in 1960 the 2nd integrated steel mill at Port Kembla wascommissioned,andlaterthatyearthenewharborwasofficiallyopenedwiththefirstshipmakingdeliveryof ironore fromYampiSound,WesternAustralia.Thenew integratedmill atKemblahad thecapacity toproduce600,000tonsofpig ironannuallyandequaledtheoutputof theworld'soperational largestblastfurnaceatthetime.xv,xviThecommissioningofthenewplantatPortKemblaraisedAustralia’ssteel-makingcapacityto~4MMT/year.

The new addition brought Kembla’s output capacity to 2.6 MMT of steel ingots per/year, surpassingNewcastleasAustralia's largest integratedsteelmill.xviiBeyondthe investmentthatwasoccurringaroundAustralia’ssteelhubontheeastcoast,in1960BHPmovedtobegindecentralizingitoperationsthroughtheinvestmentof34milliontowardsthebuildingabasicoxygensteel-makingplantatWhyalla.Extensionstothe existing blastfurnace began inFebruary 1960, and inorder to meet thegreaterdemandsoftheenlarged furnace, thesteel wharf waslengthened. xviii By1963, eleven blastfurnaces wereoperating in Australia;four at Port Kemblaand four at Newcastlein New South Wales,two at Wundowie inWestern Australia, andone at Whyalla, SouthAustralia. In 1963,production of pig-ironreached record levelsand the annual steel-makingcapacitywasinexcessof5milliontons.

IronOreExplorationandProduction1960-1970

Thepostwarperiodleadingupto1960wasmarkedbyfewnewdiscoveriesorexploitationofdepositsofiron ore.xixIn the 1960s, however, the picture changed dramatically. A succession of new, commerciallyviabledepositsofmineralsbegantobeexploited,whichplacedAustraliaamongtheworld'smostimportantsourcesofbasicmetalsand,internally,hasledtothegrowthofupstreamindustriesandthedevelopmentofuninhabited regions.xxThe beginning of the 1960’s was marked by a shift in government policy thatsignificantlyalteredthetrajectoriesofAustralia’sironoresectorandsteelindustry,asdepictedinGraph4below.InDecemberof1960,thegovernmentannouncedapartialrelaxationoftheembargoontheexportofironorewhichhadbeeninforcesince1938,permittingexportsfromsomedepositsonacontrolledbasis.Following thisdecision, tenderswerecalledupon for theminingandexportof ironore from twoknowndeposits inWestern Australia: Tailoring Creek andMount Goldsworthy.With the embargo being further


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Graph4.Production:IronOrevs.PigIronandSteel1960-1970

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relaxedinJuneof1963,theexplorationforironoreincreased.Ofparticularimportancewasthediscoveryinlate1961ofextensivedepositsinthePilbaradistrictinthenorth-westernregionoftheStateofWesternAustralia.xxi

By 1965, considerableinterestwasbeingfocusedonthe development of theextensive resources of ironorethathadbeenrevealed inAustralia during the first halfof the decade. In 1965, anumber of iron oreexploitation and exportcontracts were negotiated.For example, in August of1965 a contract was signedwith the Japanese steelindustry to supply 71.4million tons of pellets (64%ironcontent)overtwenty-oneyears starting in April 1968from theRobeRiver iron oredeposits,whichwasapprovedbythegovernments.Between1965 and 1967, thegovernment approved contracts for the export of iron ore pellets from theMount TomPrice andMountBundeydepositsinexcessof18MMT,withthebulkofthisdestinedforJapan.InJanuary1966,however,thegovernmentrefusedtograntanexportlicensefortheexportofafurther8.6milliontonsofpelletstoJapanfrom the Mount Torn Price deposit on the basis that the price was too low. In order to service thesecontacts, plans were solidified for the establishment of a pelletizing plant at King Bay with an annualcapacityof2milliontons.TheprojectsthatwereundertakenasaresultoftheseexportcontractsrequiredacapitalinvestmentinexcessofA$500millionandinvolvedtheconstructionofabout625milesofstandardgauge railway and the development of four new ports for vessels 60,000 tons and larger. Deliveriesestablishedunderthecontractsnotedabovespannedfrom1966-1991.xxii

During1967, ironoreoutputexpandedby60%,withproductiondoubling inWesternAustralia. IronoreminedatFrancesCreek,NorthernTerritorywasexportedthroughDarwin,commencinginJune1967.Largescale production began during 1967 from deposits at Koolyanobbing, Western Australia. Ore wastransportedviarailway304milestothecoastatKwinana,wherea600,000metrictonsperannumpigironproducingblastfurnacewascommissionedinMay1968.PelletisingplantswereestablishedatDampierandWhyallainSouthAustraliaandPortLattainTasmania,withacombinedratedcapacityof5.75milliontonsperannum(SeeMap2).PelletsfromtheseplantsweremostlydestinedforexporttoJapanwithshipmentofpellets fromtheseplantsbeginning in1968. InMarch1968,plansfora 'metallizedagglomerates'plantatDampier were announced. The product would bypass the conventional blast furnace method of ironsmeltingandwouldbeutilizeddirectlyinthemakingofsteel.Inmid-1967,planswereannouncedforthedevelopment of deposits at Mount Newman, Western Australia by a consortium of companies from

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Map 2. Developments in the Australian Iron and Steel Industry 1960 - 1970

Australia,theUnitedStatesofAmerica,Japan,andtheUnitedKingdom.Contractsweresignedtosupply100MMTofore to Japanover fifteenyearsatanapproximatevalueof$820million.Theproject involvedtheconstructionofa265-milerailwayfromMountNewmantoPortHedlandtogetherwithassociatedloadingandport facilities.NegotiationsforexportcontractscontinuedwithrespecttodepositsatRobeRiverandNimingarrainWesternAustralia.DepositswerealsobeingexploredinWesternAustraliaatMountGibson,Northam,intheRobinsonRanges,andnearWittenoom.xxiii

WhenexaminingMap2below,itisimportanttonotethattheorepelletizingplantsarenotlocatedatthemineheads,butat theportsofexports.Thereareanumberofreasonswhythesepelletizingplantswerecitedattheportsinsteadofatthemineheads.Beinglocatedattheportsallowsfororesfrommultipleminestobeaggregatedforblendingtofacilitatequalitycontrol,whileensuringaspecificorecontent.Thesitingofpelletizingplantsat theportalsoreducescapitalcostsbecause itallowsmultipleminestoutilizeasingleplantforpelletization.xxivFurthermore,someoftheminesarelocatedinremoteareaswithlimitedaccesstoinfrastructure,suchaselectricity,whichismostneededfortheseplants.


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Graph5.PigIronOreandSteel:Exportvs.Production

Theeffectsontheeconomybetween1960and1970weresignificantwiththevalueofthemineraloutputmore than quadrupling. These events had profound effects upon the Australian economy as a whole.Althoughthemineralandmineralprocessingsectorremainedasmallcontributortoemployment(4%)andGDP (5%), the indirect effects were considerable. First, the spending of vast amounts of capital locallystimulated industry and created employment opportunities in the construction sector. Second, the locallabor forcewas introduced to new skills and techniques. Third, previously uninhabited and inhospitableareas of the country were opened up for development. Fourth, important new industrial complexesassociatedwithmineralprocessing,particularlyaroundPerth,GladstoneandMelbourne,wereestablished.Fifth, thebalanceofpayments situationhasbeenbeneficially affectedas the export ofmineralswas to aconsiderableextentresponsibleforarecordsurplusinthefiscalyearendinginJune.xxv


The1970’s continued tobeaprosperousperiod for theAustralian steel industry,being characterizedbyboth increased capacity and production, with the excess steel designated for the export market. Whileexportsaccountedforapproximately13%ofsteelsales in1970, that figurehadrisento42%by1977.xxviWhilemostotherOECDcountriesreportedadropinsteelconsumptionduringthistimeperiod,Australiawasactuallyexperiencingan increaseduetothecapitalequipmentrequirementstiedtotheexpansionofthe extractive industries there.xxviiThis gave BHP false optimism, resulting in a projected demand of 9.9MMTin1983,whichprovedtobenearfatalfortheAustraliansteelindustryjustafewyearslater.DespitetheinitialgrowthofAustralia’ssteelexportmarketshareduringthe1970’s,bytheperiodof1979-80ithadconstrictedtojust15%oftotalsales.

Theyear1981markedtheendofAustralia’s commodity boom,thus directly impacting thedemand for steel. Left in thewake of this commodities bust,construction projects weredeferred or canceled, whichfurther exacerbated the ensuingsteelcrisis.Thereduceddomesticdemand for steel combinedwiththe slump in the global steelmarketresultedinBHPreportingits first losses since 1923.xxviiiBHP attributed these losses to anumber of factors, including adownturn in both the domesticand international markets,increases in government taxes,and low productivity along withrising input costs. In addition tothesefactors,BHPalsoattributedasignificantportionoftheblameto rising steel importspenetrating the domestic

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market.xxixBHP’sapparentdeclineininternationalcompetitivenesswasconfirmedwhenthegroupreportedanetlossofUS$144millionforitssteeloperationsfortheperiodof1982-1983.xxx

Itissignificantthat,initssteeldivisionduringthe1970’sleadingupthecrisis,investmentshadbeenintheform of upgrades to existing productionmethods instead of the adoption of new technologies thatwerebeingadoptedbyinternationalcompetitors.ThemainshortcomingofBHP’ssteelproductionwasitsdeficitincontinuouscastingfacilitiesthathadbeguntocharacterizethemostefficientmethodofsteelproductionemployedinternationally.

BHP’sresponsetothemountinglosseswastoreduceproduction,cutjobs,andpostponeinvestment.ThesecutbackswererealizedthroughtheclosureofasmallobsoleteproductionfacilityatKiannaandlayoffsatboth Newcastle and Port Kembla totaling ~3,100 jobs. BHP implied that it was unwilling to make anyfurtherinvestmentsinitsproductioncapacityuntiltheAustraliangovernmentactedtoprotectthedomesticmarketfurtherfromimports.Thisrequestwouldhavebeenashiftingovernmentpolicyduetothefactthatin1981tariffshadbeenreducedto15%from35%asresultofaseven-yearstudyconductedbyIndustriesAssistanceCommission(IAC).Specifically,BHPwasrequestingimportquotasthatwouldguarantee80-90%ofthemarketsharetodomesticproducers.xxxiBHP’scallforadditionalprotectivemeasuresdidnotfallondeafears,astheywerethesecondlargestemployerinthecountry.

Thereweremany interestsopposed toadditionalprotectivemeasures thatwould result inhigherpricedsteelinputsorthelackofavailabilityofhigherqualityalternatives.Specifically,downstreamusers,suchasautomotive makers Ford and Toyota, identified quality issues and unreliable delivery times as theunacceptable status quo of BHP’s operations. The government offered the solution of temporary tariffprotection that would have allocated 70% of the market to domestic producers, to which BHP calledunacceptableandformallyrejected.BHPthenannouncedthatunlessitsdemandsweremet,itwouldcloseall steelproduction inAustraliawithin fouryears, essentiallyputtinganend to the industry inAustralia.Thisactedtocatalyzethesearchforasolutionthatwouldappeaseallofstakeholdersaffected,specificallyBHP,downstreamindustries,andtheunions.

Outof theongoingdialoguecame theSteelPlan,whichwascraftedbasedon recommendations from theIAC,theSteelIndustryAdvisoryBoard,steelindustryrepresentatives,andtheunions.Specifically,theSteelPlan“tiedgovernmentinterventionintheformofaguaranteedmarketshareandbountiestocorrespondingcorporate commitments and union undertakings for industry harmony.”xxxiiInstead of offering increasedprotectionintheformoftariffsandquotas,thegovernmentimplementedasafetymechanismforareviewofgovernmentassistanceifthemarketshareofdomesticproducersfellbelow80%orroseabove90%.Inaddition,therewastheinclusionofamechanismtodealwithanti-dumpingissueinanexpeditedmanner.Furthermore, bounties were offered by the government for a period of five years for steel used in theproductionofspecificproducts.Also,thestategovernmentsofNewSouthWalesandSouthAustralia,wherethe works were located, were asked to restrict charges associated with electricity, freight, and payrolltaxes.xxxiiiIn response, BHP promised not to shutter its integrated steel works and limit retrenchmentsduring the five year period of the Steel Plan. BHP also promised to make $800 million in capitalimprovementsoverthecourseofthenextfouryearstoincreaseproductivityandefficiency.Inresponsetotheemploymentguarantee, theunionsagreedtonegotiateanywageincreases in linewiththePricesandIncomes Accord that had been established between the Australian Council of Trade Unions and thegovernment.InordertooverseeallofimplementationandmonitoringoftheSteelPlan,theSteelIndustryAuthority(SIA)wasestablished.


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TheAustraliansteelindustrymadeacomebackinthe6monthsfollowingtheimplementationoftheSteelPlan.However,theSteelPlanhadlittletodowiththeinitialindustryresurgence.SkepticsoftheSteelPlan,ledbytheIACandBureauofIndustryEconomics(BIE),arguethatsteelconsumptionandproductionhadalreadybeguntorecoverin1983andBHPhadreturnedtoprofitabilitybeforetheplanhadbeenenacted.In1988,theBIEreleasedareportontheSteelPlanthatreiteratedthesepositionswiththeoverallconsensusbeing that the end of the recession and depreciation of the Australian dollar were the most significantfactorsthatledtotherapidreboundofthesteelindustry.RegardlessoftheimpactoftheSteelPlan,bytheendof1983BHPbeganreportingprofitsagainandtherecoveryoftheindustrycontinuedthroughtheendofthedecade,withBHPbecomingthethirdmostprofitablesteelproducergloballybehindChinaSteelandNisshin.xxxivFurthermore,overthecourseofthedecadeBHPenjoyedanaveragedomesticmarketshareof88% and had increased its productivity by the end of the decade, from 200 to 250 metric tons peremployee/year.Thislevelofproductivitywas,however,still farbelowtheaverageof400metrictonsperemployee/yearthatcountriessuchasSouthKoreahadachieved.

BHPheldupitsendofthedealthroughthecontinuedoperationofitsthreeintegratedsteelmills.BHPhadinvestedA$2billion,1.2billionmorethantheA$800millionithadinitiallyagreedtothroughtheSteelPlan.DespitetheoverallimprovementsbyBHP,thecompanystillexhibitedpoorcustomerserviceandattentiontodeliveryschedules.Thegovernmentrenegedonitsagreementtopaybountiesattheestablishedlevels,thougha20%cuttobountieswasofferedandalsofailedtoimplementaneffectivemechanismtoaddressanti-dumping cases in a timely fashion.xxxvThe government justified the cut in thebountiesbasedon thequickreboundandreturnofthesteelindustrytoprofitabilityin1983.Furthermore,skepticscharacterizethe capital investmentsmade byBHP as littlemore thanwhatwas necessary to replace deprecated andobsolete equipment. Also, improvements in productivity were attributed mostly to retrenchments andcapital investmentsthatoccurredpriortotheSteelPlan.Theplan isperceivedtobebeneficial inthefactthatitcreatedaclimateofconfidencethatledtoBHP’scapitalimprovementprogramandthatwithouttheplanitislikelythatthecompanywouldhaveshutteredatleastoneofitsintegratedmills.xxxviThePlanmetthe demands of all the stakeholders involved while also meeting the goal of fostering internationalcompetitivenessthroughthereductionofprotection.


During the 1990’s, the Australian steel industry was characterized byminor fluctuations in growth andproduction. Entering the decade, BHP, the Australian steelmonopoly, averaged an annual production ofapproximately7.9millionmetrictons,accountingformorethan80%ofAustralia'ssteelconsumption,withtheremainderbeingmetbyimports.BHP’sproductioncapacitycontinuedtobedominatedbyblast-furnacetechnologydue to the country's abundant supplyof ironore and coal.xxxviiIn1990,BHPSteel announcedthat theywouldbuildanewcontinuous castingplant at theLongProductsdivision inWhyallavalued inexcessofA$100million.TheplantwascommissionedinMay1992aspartoftheWhyallaDevelopmentPlanatacostofmorethanA$200million.Theprojectincludedanupgradeoftheexistingsteelmakingandrollingmills, with the upgrade of Whyalla being the last major modernization project atBHP’s Australianoperations.xxxviii

In1991,anensuing recession inAustralia impacted the steel industry. Itwasaparticularlydifficult timeforBHP, which suffered a 53% drop in year-on-year earnings. If not for exports,BHP steelwould haveplungedintoalossduringthefiscalsecondhalfbecauseofa20%downturnindomesticdemandovertheyear.Thiswasoffsetbya60%inboostinexports,whichattheendofyearwererunningatanannualrateof2.5millionmetric tons, representingabout40%ofBHP's steeloutput.Aboutone-thirdofexportsduring


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thistimeperiodwassoldintotheU.S.coatedsteelmarket,anotherthirdwenttoAsianmarketsandIran,while the remainder, representing raw steel and slab products, was sold into the spot market at onlymarginalprofit.xxxixIn1992,BHPreportedsteelproductionincreased37.5%comparedwithayearearlier.Their rawsteelproduction also rose year onyear, while domestic steel supply decreased6.5% and exports increased 7% in the sameperiod.xlBy1993,BHPbeganlookingtoexpandintointernationalsteelproductionandin1993,the company established its internationaldivision. This marked the beginning of periodduringwhich BHP acquired a number of steelassets worldwide, including mills in USA andNewZealand.

InMayof1995,theKwinanamillnearPerthinWestern Australia was shut down with BHP’smotivationfor theclosurebeingthat itwasnolonger economically viable. Kwinana, whichwas nearly 40 years old at the time, wasreceiving its feedstock from various companymini-millsintheEasterAustraliaandwasonlyproducing an average of about 50,000 metrictons of products per year, compared with itsannual capacity of 250,000 tons. TheKwinanashutdownwaspart of an overall restructuringat BHP Steel's Rod & Bar Products division,which included the commissioning of a new250,000-ton-per-year rolling mill in Sydney,Australia and the shutdown of an outdated130,000-tonmill.xli

In 1996, pressure on steel prices, higheroperating costs, and lower Australian demandresulted in a significant deterioration of BHPSteel's for thatyear.xliiHowever, in1997 lowercosts and the contribution of newly acquiredoperations helped boost earnings forBHPSteelof Australia by 63.6% in the third fiscalquarter.xliiiThis wild fluctuation in the steelsectorillustratesthevolatilitythathasplaguedthe Australian steel industry, complicating theimplementation of appropriate capitalinvestmentsand the launchofnewproductioncapacity.

WhileironoreproductionandexportsinAustraliahadbeensteadilyincreasingannuallysincethe1960’s,the production of value added ferrous products destined for export, such as pig iron and steel, has not

GovernmentMandatedBeneficiation

In1996,BoodarieIron,atthetimeasubsidiaryofBHP,commenced the construction of the Boodarie IronPlant,whichwas subsequentlycommissioned in1999.The plant was designed with an intended capacity of2.3 MMT of briquettes per year. The system at theBoodarie Iron Plant employed FINMET technology toconvert the iron ore fines into iron briquettes. Giventhatestablishedtechnologiesfortheproductionofironwere not economically viable to operate in Australia,BHP choose to gamble A$ 2.6 billion on unprovenFINMETtechnologiesinthehopestomeetgovernmentrequirements for beneficiation while finding aneconomically viable solution for iron production inAustralia. BHP lost that gamble and the plant neverbecame economically viable, with the companyconsideringclosingitsplantasearlyas2001.Theplantcontinued to operate at a loss until 2004, when anexplosion damaged the plant during scheduledmaintenance. BHP cited “the failure to consistentlyachieve the financial and technical targets announcedin2000,whichleft[TheGroup]withnoalternativebuttoclosethefacilitiespermanently.”1Muchlikethestoryof the Boondarie Iron Plant, the Rio Tinto HiSMELTplantalsoturnedouttobeaneconomicboondoggle.

InJulyof2001,RioTintoannouncedplanstoconstructa pig iron plant using Hismelt technology as part of ajointventureinKwinana,WesternAustralia.1In2003,at a cost of A$ 400 million, construction of the firstcommercial Hismelt plant began inKwinana,WesternAustralia with a projected capacity of 800,000 metrictons per year. After multiple setbacks, the plant wascommissioned in 2005 and the operated untilDecember2008.DespiteRio Tinto’s initialhigh hopesfor the new technology, the plant never achievedeconomicviabilityandtheglobalfinancialcrisisforcedtheoperationtoclose.


13

mappedasimilartrajectory.Stagnantdomesticsteelproductionanddecliningexportsofironandsteelinthe1990’sservedtoactascatalystforstateintervention.In1996,theStateofWesternAustraliapassedtwolegislativemeasureswiththeintentionoffosteringdownstreambeneficiationbyrequiringmajorexportersofironoretoengageinbeneficiationbeyondthatof justironoreconcentrationandpellitization.Thetwoacts,“TheIronOreBeneficiationAgreementAct”and“TheIronOreDirectReducedIronAgreementAct”,werepassedbythestate“forthepurposeofpromotingemploymentopportunityandindustrialdevelopmentandinparticulartheestablishmentoffurtherprocessingfacilitiesinWesternAustralia.”xliv

Bothoftheseagreementsstipulatedthat,asarequirementtodobusinessinWesternAustralia,companiesmustsubmitplansforandimplementbeneficiationprojects.Outoftheseactswerebornetwobeneficiationprojects, theBoodariehot briquetted ironplant using theFINMETprocess, and theHismelt operation inKwinana,projectsundertakenbyBHPandRioTintorespectively.Itisimportanttonotethattheprocessingtechnologiesemployedatbothplantswerenewtothemarketatthetimeandhadyettobefullydevelopedorwidelyadoptedbytheindustry.

Both examples show that the governmental attempts at fostering beneficiation through legislative actionwereacompletefailurewithregardtoironore.1Neitherprojectreachedeconomicviability,thuspromptingtheir respective closures, despite significant capital expenditures by the companies involved and thedeploymentofnew,potentiallymoreefficientproductiontechnologies.Asaresultofthetwobeneficiationprojectfailures,in2011theWesternAustraliangovernmentmovedtorepealthebeneficiationactsof1996andrenegotiateditsagreementswithRioTintoandBHPregardingironoreextraction.Thenewagreementsleftouttherequirementfortheimplementationofbeneficiationprojectsbythetwoproducers,butincludedhigherratesforroyaltiesassociatedwithextractionandexportofironore.

Themostsignificantfeatureofthedecadecamein1997whenBHPstartedamajorrestructuringeffortthatwould,inpartresultintheclosureofNewcastlePlantinNewSouthWales.AmajordrivingforcebehindtheBHPdecisionwerethemounting lossesthatthecompanywas incurringbecauseof themill’s lossmakingoperations. In1996alone,BHP tookanestimatedA$222-millionwrite-offon this facility.BHPexecutivescited dropping steel prices, cost reduction pressures, and the probability of heightened competition asreasons for therestructuring. Inaddition,BHP'ssaleshadbeen flat for the first threequartersof1996.xlvTheplanstophaseoutsteelmakingattheNewcastleRod,BarandWiredivisionwouldresultinthelossofanestimated2,500ofthedivision's4,100jobs.Newcastle'sblastfurnaceandcokeovens,whichproducedsome1.7millionmetrictonsofrawsteelperyear,weretobephasedoutoverthefollowingtwo-and-a-halfyears because those divisions of the steelworks had been experiencing mounting losses and were notinternationally competitive. The companywide rationalizationwas aimed at addressing issues associatedwithintenseinternationalcompetitionandfallingprices.TheplansallowedforNewcastle'srollingmillstocontinued to operate, being supplied with semi-finished feedstock from a new 1.8-million-ton-per-yearcontinuousbillet caster.The casterwas commissioned in2000andwas locatedat theWhyallaWorks inSouthAustralia.Over90%of rawsteel for rodandbarproductionby this timewasproduced inelectricfurnaces,unlikeNewcastle'sobsoleteandinefficientintegratedsetup.

1 While the government-mandated beneficiationthroughlegislativeactionwasacompletefailurewithregardtoironore,thereareothermineralswherethisapproachhasyieldedsuccess.Therehavebeensuccessesinbeneficiationwherethereareintegratedoperations in place. For example, Alcoa with aluminum and Tronoxwithmineral sands. The problems arise when aminingcompanyisbeing“forced”toforayoutsideoftheirareaofexpertiseandtransformtheiroperations.Specifically,thebigironorecompanies(BHP,RioTinto)havedivestedovertimefromtheirironandsteelproductionoperationsandthetwobusinessesarequitedifferentbeasts.


14

By 1998, BHPwas facing increasing pressure to reveal its future plans with regard to its restructuring,especially ones that included divesting itself from any of its assets. Shareholders were becomingincreasinglyconcernedaboutrumorsthatthecompanyplannedtogetoutofthesteelbusinessaltogether.Inresponse,thecompanyannouncedthatitwasintheprocessofanacross-the-boardassetreviewandnofinal decision had been made regarding shedding its steel assets. Executives did stress that BHP wascontinuing to consider "rationalizing" its asset base and made it clear that the entirety of their assetportfolio was up for review. The company had been hit hard by depressed markets for many of itscommodities,most significantly steel, and, although the company headswarned of continued turbulenceacrosskeycommoditymarketsinthemediumterm,thecompanyreportedanetprofitfortheyear.xlvi

In January of 1999, BHP announced the integration of the Company's steel businesses into a singleorganization thatwascomprisedof fourbusinesses;BHPFlatProducts,BHPCoatedProducts2,BHPLongProducts, andBHPBuildingand IndustrialProducts.The first twobusinesseswerebased inWollongong,NewSouthWalesandthelattertwowerebasedinNewcastle,NewSouthWales.xlviiIn1999,theNewcastlesteelworkswerepermanently decommissioned.Another feature of that yearwasBHP cutting the outputfrom itsWhyalla steel works in South Australia by 15% in response to weak demand in Asia, with thecutbackamountingtoapproximately70,000metrictonsofthemill'stotalannualoutputof470,000metrictons.xlviii

The Australian iron ore market began to experience renewed pressure in 1999 as world crude steelproduction continued to contract. That, combined with an oversupply of iron ore, set the stage for oreproducers scrambling formarket share.Asa result, internationally ironoreexportersbeganaggressivelydiscounting prices below already sharply lower benchmark levels in an effort to bolster export volumes,which had eroded during the period of 1998-1999 as a direct result of the Asian economic slump anddecreasingworldsteeldemand.Additionally, lower freight rates intoAsiahadallowedSouthAfricanandBrazilian exporters to competewith Australia in the Asianmarket. BHP saw seaborne iron ore volumesconstrictduetoadecreaseddemandinJapan,China,andWesternEurope.Whileseaborneironoretradehita record 427 MMT in 1997, the sharp fall in global and especially Asian crude steel production causedseabornetradetoconstrictto415MMTin1998andtoshrinkagainto400MMTin1999beforerecoveringin2000.

Forexporters toAsia, competitionwas further intensified throughacombinationof the fall inAtlantic toPacificfreightratesinconjunctionwiththedevaluationoftheBraziliancurrency.Atthetime,BrazilwasthelargestproducerofironoreintheworldandthesecondlargestexporterafterAustralia.AustraliaandBraziltogetheraccountedforabout70%ofworldironoreexports.

ThetwomostimportantironoreimportingcountriesinAsiaduringthisperiodwereChinaandJapan.Chinaaccountedforabout25%ofAustralia'sironoreexportswhileJapanaccountedforabout45%.TheJapaneseeconomywasexperiencing itsworst recession in50yearsand its lowest steelproduction in20years. Inresponsetothedifficultconditionsandincreasinglevelofcompetitionintheironoremarket,BHPIronOrebegan restructuring itself again. Its strategywas to improve cost competitiveness, focus on Asia, ensure

2 Australia has been a true innovator in the area of coated steel markets. In 1966, BHP began the production of COLORBOND® steel and for many years has had and still has a global competitive advantage. Nearly half of all new homes in Australia have roofs made from COLORBOND® and 9 out of 10 new homes built in Australia feature products made from COLORBOND® steel. While most production has been offshored due to cheaper labor, it is still manufactured in Australia for the domestic market.


15

supplyflexibility,andenhanceitstechnicalabilities.Initiativestoreducecostsinvolvedcuttingstaffby20%beginningin1999,optimizingstrippingratiosandmineplans,utilizinghydraulicexcavatorsfordiggingore,andsettingbenchmarksbasedonthebestpracticesofcontractorsandcompetitors.xlix


Thenewmillenniumwas thebeginningofasignificantrestructuringof theAustraliansteel industry.Thework that BHP had undertaken during the mid to late 1990’s to position its business away from steelproductionwas solidified. Specifically, in 2000 the BHP steel long products division divested to becomeOneSteel. BHP continued its drive towards being an extractive industry powerhouse through itsmergerwithBillitonPlc to form the global resources giant,BHPBilliton, in2001. In2002,BHPSteel becameanindependent company fromBHPBilliton,marking BHP’s exit from steel production in Australia after 87years, with BHP Steel being renamed BlueScope in 2003 as per the agreement. BHP’s exit from theAustralian steel business left OneSteel (Renamed Arrium in 2013) and Bluescope as the two primaryproducersinthecountry.AsisdepictedinGraph6above,therestructuringoftheAustraliansteelindustrycoincided with the beginning of a trend of contraction of domestic steel. While crude steel productionremained relatively stable inAustralia from the start of thenewmillenniumupuntil the global financialcrisisin2008,theindustryhasneverfullyrecoveredfromthesharpdipindemandthatresultedfromthecrash. The strongAustralian dollar, excess global production capacity, and slowing demandhave left thedomestic steel industry fighting for its survival. The situation has been particularly acute in AustraliabecausethehighAustraliandollarhasputalotofpressureonthesteelproducersand,despitetheireffortstowards improvingproductivitywithin their steelplantsand the implementationof cost reductions, theycontinuetostruggle,shedjobs,andshutteroperations.MembersofAustralianlaborunionshavesuggesteda temporary increase in tariffs on imported steel products, which currently range between 0-5%. Inresponse to the ongoing downturn, in 2011 BlueScope stopped exporting steel and closedsome of itsproduction facilities at the Port Kembla Steelworks and Western Port. The industry has continued itsdownslideandby2015thefutureviabilityofdomesticsteelproductionhasbeencalledintoquestion.Thesituation has become so dire that analysts predict that in the medium term BlueScope will exit fromAustralian steelmaking all together, retaining their profitablemetallic coating andpainting business. ThefutureofthePortKemblaSteelworks,thenucleusofAustraliansteelmaking,andthelifebloodofthousandsoffamiliesintheregionisuncertain.AsofOctober2015,BlueScopeSteelwasintalkswiththegovernmentandunionstoidentifywaysitcancutA$200millionannuallyfromitsoperationalcoststoavoidclosureofthe mill. Bluescope claims that the mill will face imminent closure without this reduction in annualoperationalcosts.

Benefits

WhilethesteelindustryplayedamoresignificantroleintheearlyAustralianeconomythaninlateryears,itnever represented a significant contribution to either GDP or total employment.Graphs 8 and 9belowillustrate the role that the steel industry has played with regard to the national economy. While directemployment from the sector was only approximatekly 1% of total employment from 1957 to 1967, thesector accounted for ~3% of total GDP. hen examining the contribution of the steel industry to theAustralian economy in recent history, direct employment from the sector was less than 1% of totalemploymentfrom1996to2006,andthesectoraccountedforlessthan1%oftotalGDPduringthatperiod.It is important tonote thatAustraliahas robustmanufacturing sectors that specialize in structural steelsandsheetmetalproducts.Whenthese industriesare included in theanalysisof theircontributonto totalGDPandpercentageoftotalemployement,thebenfitstotheAustralianeconomynearlydoubleascompared


16


0.9%

1.0%

1.1%

1.2%

2.5%

3.0%

3.5%

4.0%

%ofTotalEmployment

%ofG

DP

BenefitsoftheSteelIndustrytoAustralianEconomy(1957-1967)

SteelOutputValue,%oftotalGDP

EmploymentinSteelIndustry,%oftotalemployment

0.00%

0.20%

0.40%

0.60%

0.00%

0.50%

1.00%

19911993199519971999200120032005

%ofTotalEmployment

%ofG

DP

BenefitsoftheSteelIndustrytoAustralianEconomy(1991-2006)

SteelIndustryas%oftotalGDP

EmploymentinSteelIndustry%oftotalemployment

Chart1.BenefitsoftheSteelIndustryandValueAddedSectors

Sector Employment GrossProduct(MlnsA$2010Price)

IronandSteel 28582 3,564.09$StructuralSteelFabricating 17295 1,257.40$SheetMetalProducts 18262 1,659.68$Totals 64139 6,481.17$TotalEmployemnt 8951300AustralianGDP 777,277.88$%ofTotalEmployment 0.72%%ofGDP 0.834%

BenefitsoftheSteelIndustryandValueAddedSectors,Year2000


Graph9.BenefitsoftheAustralianSteelIndustry(1991-2006)

Graph8.BenefitsoftheAustralianSteelIndustry(1957-1967)


to just that of the iron and steel sector. However, their overall contribiotion is relatively insignificant asshowninChart1below.


17

KeyConclusions

Australiawassuccessful inestablishingadomestic steel industry that fullymet thedomesticdemand forsteelforwellover80years.ThebirthofthecontemporarysteelindustryoccurredfirstinLithgow,followedbyNewcastleandPortKemblaattheturnofthe20thcentury.Whatthesethreelocationshadincommonwas close proximity to inputs, easy access tomarkets, availability of labor, and relatively low transportcosts.However, themere geographic locations of these production centerswere not the only factor thatcatalyzedinvestmentintheestablishmentofthedomesticironandsteelproductioninAustralia.

StronggovernmentinterventionwasathemethroughoutthehistoryoftheAustralianSteelIndustry.Earlyon, systemsofbounties coupledwithgovernmentdrivendomestic steel allocationhelped to catalyze thedevelopmentoftheironandsteelindustry.Thisgovernmentinterventionresultedinthemodernizationandexpansion of existing domestic production capacity while also effecting knock-on growth effects thatmanifested in the mining and supportive upstream industries. Tariffs played a significant role in theestablishmentandgrowthofthesteelindustryandcontinuedtoplayasignificantroleuntilthelate1970’s,whentheybegantobeslowlyphasedout,withcurrentratesrangingfrom0-5%onimportedsteelproducts.Also, the government often partnered with steel producers and the iron ore sector as a co-investor oninfrastructureprojects.Furthermore,thegovernmentimplementedanexportbanonironorefrom1938to1960, and subsequently intervened in deciding whether the prices negotiated for ore exports wereacceptablebygrantingexportpermits.

Inthe1990’s,theAustraliangovernmentdecideditwouldtrytofosterdownstreambeneficiationthroughlegislativeactionwiththepassingoftheIronOreBeneficiationActsof1996.Thetwopigironprojectsthatwere borne out of this directivewere complete failures.Neither project reached economic viability, thuspromptingtheirrespectiveclosures,despitesignificantcapitalexpendituresbythecompaniesinvolvedandthedeploymentofnew,potentiallymoreefficientproduction technologies.This suggests that themarketforceshadcreatedconditionsthatwerenotconducivefortheeconomicallyviableproductionofpigironforexport inAustralia,despite theabundanceof inputsand that it is likely thereasonwhy industrywasnotalreadyengaginginthispractice.Forcingironoreproducerstoengageindownstreambeneficiationdidnotchangethisfact.

Whilegovernmentinterventionworkedwelltostartwith,thesteelexportmarketneverreallytookoff inAustralia. Tariffs are partially to blame for the steel industry’s failure to expand itsmarkets outside thecountry.Theprotectionaffordedthesteelmonopoly,BHP,theluxuryofaguaranteedmarketdomesticallyand reduced theurgencywithwhichBHPhad to become internationally competitive and service foreignmarkets. The lack of innovation then led the steel industry to living a “sheltered life”. This was a realdetriment to theAustraliansteel industrywhen themarketbegan toopenupandcompetition increased.BHPgrewitssteelproductioncapacity in linewithprojected increases indomesticdemand,withexportsnotbeingamajorfactorintheplanningprocess.AsprotectivebarrierstoimportsbegantobereducedandBHP was increasingly forced to compete with other international producers, it became clear that theindustrywasnotcompetitiveenough.Restructuringinthe1980’s,whichstemmedfromacrashinthesteelindustry in 1983, helped to pave the way for an additional two decades of prosperity. However, theincreasinglyglobalizedsteelmarket,globalovercapacity,andthefinicalcrisishavealldealtthedeathknelltotheindustry.


18

Appendix1.GovernmentInterventionsSignificanttoIronandSteelIndustry

Name Year Description

GovernmentPurchasecontract

1905 In1905,acontractwasobtainedfromtheNewSouthWalesgovernmentbytheLithgowsteelworksforthesupplyofitsironandsteelneedsforaperiodofsevenyears.

ActfortheencouragementofmanufacturesintheCommonwealth

1909 Underthisact,contractorsthatsuppliedsteeltothegovernmentwereeligibletoreceivegenerousbountiesonironandsteelmadefromAustralianores.

TariffActof1921 1921 ImplementedTariffsrangingfrom20-25%onsteelimports.

TheIronandSteelProductsBountyAct

1922 Bountiesarepayableonfencingwire,galvanizedsheets,wire-netting,andtractionenginesmadeinAustralia.ItisessentialthatthesearticlesbemadefrommaterialsproducedandmanufacturedinAustralia,unlessimportedmaterialisauthorizedafterinquiryandreportbytheTariffBoard.Thetotalpaymentsinanyonefinancialyearmustnotexceed£250,000.Ratesofbountyare:forfencingwireandgalvanizedsheets,£212s.perton;forwire-netting,£38s.perton;andfortractionenginesfrom£40to£90each,accordingtocapacity.Theamountspaidineachcaseduringtheyearended30thJune,1928,were£104,485,£65,128,£73,873,and£140.UndertheamendingActof1927,thebountyongalvanizedsheetswasincreasedto£312s.pertonandnobountyispayableontractionengineswherethecostofmaterialsorpartsnotproducedinAustraliaamountstomorethan40%ofthetotalcost.

THEIRONOREEXPORTEMBARGO

1938-1960

ThegovernmentimposedthebanontheeveofWorldWarIIforastrategicreason:topreventtheJapanesefromimportingorefromYampiSoundinWesternAustralia.Anotherconsideration,whichunderpinnedtheretentionofthebanformorethantwodecades,wastheCommonwealthofAustralia'sperceptionthatAustralia'sironorereserveswerelimited.

TheSteelPlan 1983 TheSteelPlan“tiedgovernmentinterventionintheformofaguaranteedmarketshareandbountiestocorrespondingcorporatecommitmentsandunionundertakingsforindustryharmony.”Insteadofofferingincreasedprotectionintheformoftariffsandquotas,thegovernmentimplementedasafetymechanismforareviewofgovernmentassistanceifthemarketshareofdomesticproducersfellbelow80%orroseabove90%.Inaddition,therewastheinclusionofamechanismtodealwithanti-dumpingissueinanexpeditedmanner.


19

IronOreBeneficiation(BHP)AgreementAct(REPEALED)

1996 In1996,theStateofWesternAustraliapassedtwolegislativemeasureswiththeintentionoffosteringdownstreambeneficiationbyrequiringmajorexportersofironoretoengageinbeneficiationbeyondthatofjustironoreconcentrationandpellitization.Thetwoactswerepassedbythestate“forthepurposeofpromotingemploymentopportunityandindustrialdevelopmentandinparticulartheestablishmentoffurtherprocessingfacilitiesinWesternAustralia.”IronOre-Direct

ReducedIron(BHP)AgreementAct(REPEALED

1996

SteelIndustryProtectionBill

2015

TheobjectofthisBillistoensure,asfaraspracticable,thatallsteelusedinpublicworksorinfrastructureconstructedbyoronbehalfofpublicauthoritiesismanufacturedinAustralia.


20

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