www.awu.net.au

NEW STEEL PLANOur Vision for Australian Steel

In the 21st Century

Produced by The Australian Workers’ Union Paul Howes – National Secretary Level 10, 377 – 383 Sussex Street Sydney NSW 2000 Phone: 02 8005 3333 Fax: 02 8005 3300 Web: www.awu.net.au

The Australian Workers’ Union

New Steel Plan

Our Vision for Australian Steel in the 21st Century

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The Australian Workers’ Union (AWU) represents thousands of workers in Australian iron and steel industries. The AWU is passionate about steel and wants a future for this great industry. If steel is to be made anywhere in the world, let that steel be made in Australia. The AWU wants to see a local steel industry using our high quality iron ore resources, upholding best practice steelmaking standards and a highly skilled and qualified labour force. Value adding by the iron and steel sector generates an enormous contribution to the national economy. If our nation fails to back this industry we will see the biggest impact felt at a regional level including in places like Port Kembla, Whyalla and Newcastle. However, the steel sector is facing a crisis. The impacts of the global financial crisis (GFC) are being felt in the rapid slowing in forward orders for steel, despite the best efforts of employers and workers alike in maintaining production and profitability. The GFC is threatening the longer-term viability for this industry because it means that our producers will be competing, for an undefined and uncertain period, against an array of cheap excess supply from major producers, including China and India. The implications for our sector are clear. Stay and fight (with the assistance of government policy where possible) or stand aside, and relinquish our position as a significant steel producer and exporter; turning instead to imports to supply the domestic market. But such a stark choice is not a real choice for Australia. Doing nothing risks the collapse of our domestic steel supply. The result will be import dependence for a strategic industry, and the transfer of value added wealth, as well as jobs, to other producer nations. This would occur just at the time when local employment in manufacturing requires support not further strain; and when the government is rolling out massive investment packages into green cars, infrastructure and building stimulus packages which will all require steel inputs. Now is the time to guide our industry though the choppy waters caused by the GFC in order to sustain our local capacity to meet our domestic needs and also to nurture and build on the enormous strides made by the sector in global competitiveness. The AWU’s New Steel Plan builds on the shoulders of giants such as John Button who personally developed much of the 1983 Steel Plan that has secured our local industry for the past 25 years. It is his drive for industry policy reform, measured by a relentless pursuit for an export oriented and innovative industry, that also guides the AWU’s New Steel Plan. Later in this paper we provide our 10 Point Plan for the steel industry (see page 17) – but, naturally, for the AWU, our key concern is securing the jobs of our steel industry members.

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Recent data suggests that for every 1000 tonnes of lost steel production we can expect to lose 60 jobs. That equates to nearly 500,000 direct and indirect jobs lost if we stand by and allow the Australian steel industry to completely collapse. The ideas contained in this paper are offered to government in the quest to secure unanimous agreement to the proposition that says inter alia that: • the Australian steel industry is Australian industry and very competitive; • investing in Australian steel is value for money and will promote living standards through investment and jobs • local activity and employment in steel is the best counter to the GFC; and • there is a sustainable future for steel at best practice over the long term on the basis that the world will need more steel - not less - to build our economies, including our renewable energy sources, such as wind and solar facilities, as well as water conservation infrastructure. Paul Howes NATIONAL SECRETARY THE AUSTRALIAN WORKERS’ UNION

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IIInnntttrrroooddduuuccctttiiiooonnn The AWU is committed to the Australian steel industry and has been part of the renewal of Australian steel since the Button Steel Plan in 1983. The AWU’s New Steel Plan recognises the contribution to the development of industry policy in Australia by John Button. The Minister for Innovation, Industry, Science and Research, Senator the Hon Kim Carr has outlined in his essay at the time of John Button’s passing in 2008 that:

-------------------- “two things were clear to Button from the day he was sworn in as industry minister in 1983. One, it is a mistake to have “too narrow a focus on the issue of protection”; and two, it is naive to think “market forces will sort out all the problems.”1 The challenge, as he saw it, was to find a middle way.

--------------------- This paper too has tried to be faithful to Button’s legacy and adopt a middle way and represents a blend of policies directed at the immediate needs of a sector under threat with longer term responses aimed at ensuring Australia retains a steel industry at the cutting edge. This New Steel Plan draws from a range of resources from industry and government, including the resources of the Australian Steel Institute. The AWU is also grateful for the contribution to the study by one of the main authors of the Button Car Plan, Richard Johns2 for his thoughtful and considered contribution to a number of the ideas outlined in this paper. This paper builds on the debate and resolutions on the financial crisis, steel and jobs at our National Conference in February.3 The AWU offers this paper as a contribution to the policy development debate rather than pretending it represents the final word. There are many issues to be considered and impacts to assess. What is clear however to the AWU at this critical time is that it is vitally important to not delay addressing the pressures facing Australia’s steel industry. The situation of the steel industry in 2009 is very different to that of the early 1980s. Today, the industry is trying to navigate through the immediate problem of a sharp downturn in demand, brought about by the global financial crisis. Building on the Button Plan the underlying structure of the industry is, however, much more robust than it was in the 1980s. Production capacity is much better matched to normal demand, without the excess (and unprofitable) capacity of the 1980s. And considerable capital investment has also been undertaken since the public listing of BlueScope and OneSteel to keep facilities modern and productive. The requirement therefore is not the overall restructuring of the steel industry but rather the need for immediate measures - perhaps for a finite duration - to stimulate steel demand, complemented by careful consideration of government policy which threatens industry competitiveness (e.g. CPRS), and addressing injurious surges of imports and other trade distortions over the longer term.

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IIInnnddduuussstttrrryyy SSStttrrruuuccctttuuurrreee ––– aaa fffeeewww fffaaaccctttsss The steel industry is an important segment of the Australian economy. In 2005-06 the Australian steel industry employed approximately 24,000 people, paid wages of $1.5 billion and had an annual turnover of approximately $13 billion.4 The steel industry is also a major manufacturing exporter. A significant proportion of the growth in global steel production capacity is taking place in the so-called ‘BRIC’ countries - Brazil, Russia, India and China. The Australian steel market has very low tariff and non-tariff barriers and is characterised by substantial and growing levels of imports, with pricing of many steel products set with a reference to import parity pricing. Imported steel products are sourced from countries including China, Japan, Thailand, South Korea, South Africa, Malaysia, Taiwan, Singapore, Vietnam and Indonesia. In 2007, Australia imported approximately 2.7 million tonnes of steel products.

Risto Tanecevski, is a 50 year old father of two daughters – 15 and 2- and an AWU delegate at BlueScope Steel’s Port Kembla Blast Furnace.

“At the moment BlueScope is keeping everybody employed by putting full time employees onto doing work that the contractors used to do, such as cleaning. It is saving dollars and keeping union members employed – that’s a good thing.” “But BlueScope has no orders. We’re just keeping things ticking over. Unless there’s some sort of pick up in orders I don’t know what the end result is going to look like.” “I must say the workforce here is very disappointed that a big infrastructure project in Brisbane this year decided to source the steel from India.” “They’re using around 130,000 tonnes of steel. My view is that Governments during this crisis should make sure infrastructure contractors favour good Australian products.” “Giving procurement priority to Australian product would definitely help BlueScope Steel survive through this economic crisis. Given that priority our mill would be just ticking over as normal domestically.” “I would like the union to get more of the stimulus money going to infrastructure spending. That will keep people in jobs, that’s the priority right now if you ask me.” “If we have to close down, it would be devastating for the whole community. I think Wollongong would be probably as bad or worse than Newcastle in the 1980s and 1990s.”

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Imported steel products were split relatively evenly between long products (OneSteel range) and flat products (BlueScope Steel range). These imports cover a range of product types, including structural sections, rod for reinforcing, pipe & tube products, galvanised products, hot rolled coil and some coated and painted steel products. In addition, imports of large fabricated steel structures and infrastructure that would once have been manufactured in Australia have increased sharply in recent years, especially to supply mining and resources projects. For example, imports of complete pre-fabricated steel buildings grew from AUD$15 million in 2002 to AUD$57 million in 2007. In 2007, Australia exported approximately 2.5 million tonnes of steel products in total. The exported tonnes were heavily biased towards flat products, predominantly constituting slab and hot rolled coil, as well as some painted and coated steel products, mostly destined for BlueScope Steel’s export customers. Also see Appendix A for further details on trends.

CCCooommmpppeeetttiiitttiiivvveee ssstttrrreeennngggttthhhsss ooofff ttthhheee AAAuuussstttrrraaallliiiaaannn sssttteeeeeelll iiinnnddduuussstttrrryyy In many respects, Australia is a natural place to manufacture iron and steel. Australia is one of the few countries in the world with large, high quality reserves of the key iron and steelmaking raw materials, such as iron ore and metallurgical coal. Labour costs, typically a source of competitive advantage for manufacturers in developing countries, comprise a relatively small proportion of upstream iron and steelmaking costs. This is particularly the case as capital has been substituted for labour over recent decades. This distinguishes steel manufacturing from traditional labour-intensive manufacturing industries, which have typically experienced sharp declines in production in Australia over recent years. Those steelmakers with ready access to raw materials therefore have a degree of inbuilt competitive advantage compared to steelmakers in some countries who need to ship their raw materials. Energy costs also comprise a significant proportion of costs and Australia has historically enjoyed low energy costs by world standards (albeit energy costs are now increasing, and will inevitably increase further with the introduction of a carbon price in Australia).

The Australian steel market is characterised by low tariff and non-tariff barriers (flat steel imports from developing countries, such as China, typically enjoy zero tariff) and negligible levels of government assistance. By contrast, many overseas steel producers against which Australian producers competes (in both domestic and export markets) enjoy relatively high levels of tariff assistance. (Refer to trade policy overview in BlueScope Steel submission to Mortimer Inquiry). And while trade barriers in the steel industry are generally low worldwide (compared, for example, to very high peaks for some agricultural commodities) nevertheless, in a very competitive global industry, even tariff barriers in the order of 5-10 per cent can equate to the entire selling margin on some steel products. Removal of these should remain a constant goal for Australia but the GFC has stilled the appetite for global reform and other alternatives, including bilateral and regional agreements must be pursued. Absent international agreement, domestic measures will also be required to protect industry for the period of the GFC.

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Comparisons with China are illustrative of the differences in energy intensity in steel manufacture and consequently in the aggregate level of emissions.

In recent testimony to the US Congress Trade Sub-Committee, International President of the United Steelworkers (USW) conveyed the results of a China steel environmental report sponsored by the Alliance for American Manufacturing, in which the USW is a partner with several major employers. The study revealed stark findings showing American steel has become 25 percent less energy intensive over the past 20 years, while the Chinese steel industry now emits as much carbon as the rest of the global steel industry combined. As a result the production of a ton of steel in China generates more than three times the carbon emissions of a ton of steel produced in the U.S.5

At the same time, it is important to note that the US industry has closed significant blast furnace capacity in recent decades in favour of electric arc furnaces (EAFs). This factor will distort comparisons of industry averages in favour of the US. While EAFs are significantly less greenhouse and energy intensive, they do not manufacture new steel, but rather recycle scrap steel. In a world where steel demand is growing, production of new ‘virgin’ steel via the blast furnace route is unavoidable.

A recent meeting under the auspices of the International Metalworkers’ Federation (IMF) hosted by the AWU has called for an international response to the propaganda of a green economy and green jobs, and the spin that the way to achieve this is to punish energy-intensive traditional industries such as steel. Any international agreement to reduce carbon emissions must avoid unfair trade conditions and guarantee a level playing field. In our view the G20 should provide significant financial support for research and development in breakthrough technologies such as carbon capture and storage, clean coal and low emissions iron and steelmaking. These technologies could potentially significantly reduce CO2 emissions in steel production.6

Our unions, from 10 leading steel-producing nations, have called on the G20 governments to recognise the opportunities that steel provides to support the transition to a lower-carbon world. And as demand grows in response to the nation-building infrastructure investment projects being pursued by many governments, steel plants must be given the confidence to invest locally in future technologies to tackle this is

Competitive Advantages Of Australia’s Iron And Steel

The Australian iron and steel industry has a number of competitive advantages, which include:

• Proximity to high quality iron ore reserves; • Access to high quality sources of hard coking coal; • Generally modern manufacturing facilities and technologies as a result of the continuing

substantial capital investment of the past two decades; • Strong channels to market through integrated national distribution networks; • Skilled labour force; • High quality products; • Strong technical and product support for domestic customers; and • Supply chain and manufacturing capabilities that present customers a broad product

offering, relatively short lead times and reliable delivery compared to those traditionally associated with imported steels.

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A competitive Australian steel industry is an important foundation for a competitive Australian manufacturing sector. Australian-made steel is a key input for a large range of domestic manufacturers, including the automotive sector, white goods, machinery, pressure vessels, transport equipment, mining equipment and building products sectors.

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Case Study - Productivity At Port Kembla

AWU And Bluescope Achieve World Class Results BlueScope’s most recent half year results highlighted the sharp increase in labour productivity per tonne of steel at Port Kembla Steelworks over the last decade. Productivity is a key element of international competitiveness, along with control of costs. A further slide demonstrates the success of Port Kembla Steelworks over recent years in containing those costs that are within the enterprises control (ie, apart from raw materials). This provides a solid platform for future growth.

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In existing market and credit conditions, the value of a local manufacturer and supplier cannot be underestimated. The value proposition includes multiple distribution and processing centres nationally enabling servicing of the local market with next day delivery of floor stock.7

OOOppppppooorrrtttuuunnniiitttiiieeesss iiinnn SSSttteeeeeelll The nature of the steel industry provides the sector with attractive options to reduce emissions and increase energy efficiency. Steel is fully recyclable. At the end of their useful life, products containing steel can be converted back into ‘new’ steel, ready for other applications. In addition the steel production process can utilize wastes and by-products as alternative reductants and raw materials, which reduces air pollution and the use of fossil fuels. Steel production also generates large quantities of solid and gaseous waste. There are significant opportunities to increase the uptake of this waste (in particular, steel slags) by other industries, as well as the steel industry, through the introduction of enhanced processing technology and the development of cross-sectoral linkages. For example, slags are processed into building materials, such as cement and aggregates, providing a major contribution to the environment by reducing CO2 emissions and the need for virgin raw materials. Waste gases can be reused to generate electricity via co-generation facilities, thereby replacing electricity that would otherwise be sourced from the coal-fired grid. One such project currently under consideration is a co-generation plant at BlueScope Steel’s Port Kembla Steelworks. This project would offset more than a net 800,000 tonnes (CO2-equivalent) of greenhouse gases in New South Wales. The primary areas to reduce emissions and/or conserve energy are:

• Process and raw materials enhancement • Energy and materials recycling and reuse; and • Waste and emissions reductions.8

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The Value Of Steel To The Australian Economy

From 2001 ICN Manufacturing Report: Research that the Industrial Supplies Office has published, Impacts on New and Related Businesses in Australian Manufacturing Sector June 2001. Demonstrates that for every $1 million of successful new or retained manufacturing business, the following effects flow on to the economy:

$317,900 worth of tax revenue is generated; $1,626,000 worth of value-added is generated; $211,700 in welfare benefits are saved; and 18 full-time jobs are created.

Of the 18 full-time jobs created, 5 are created as a direct result of the new or retained manufacturing business. The remaining 13 are created as an indirect result of flow-on effects. From 2007 ICN Manufacturing Report: For every additional $1 million of successful new or retained manufacturing business in 2005-06, the following effects flow through the economy:

$1,236,000 of value-added is generated; 12 full-time jobs are created; and $394,000 of tax revenue is generated.

ASI Assumptions on tonnes vs jobs: Assuming an average manufactured steel price of $5,000 / t (includes, material, fabrication, transport, painting and installation.) $1,000,000 = 200 tonnes of manufactured structural steel = 12 full-time jobs. So for every 1,000 tonnes lost, we lose 60 jobs. And the Government loses $1,970,000 in tax revenue. (Source: ASI, 2009).

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RRReeeccceeennnttt mmmaaarrrkkkeeettt pppeeerrrfffooorrrmmmaaannnccceee The Australian steel sector remains competitive but under strain in the wake of the global financial crisis (GFC) and in the face of the global economic recession (GER). Strong first half year results (six months to December 08) were recorded for major producers BlueScope and OneSteel. BlueScope recorded an underlying net profit of $479 million on EBIT of $753 million and OneSteel recorded a net profit of $228 million on EBIT of $401 million. These results were generally achieved in the first quarter of 2008-09, with demand significantly softening after that both domestically and internationally.9 Reduction in export markets is the main driver of lower sales for BlueScope (OneSteel does not export significant volumes) but there was also significant softening in demand in Australia in Q2 compared to Q1. [And this has continued in the first quarter of 2009] In response, companies are reducing production to address high inventory levels and lower demand (eg BlueScope shut Blast Furnace No 5 on 18 January ahead of previously scheduled 1 March date for reline) and closed No1 paint line and packaging cold mill at Port Kembla. OneSteel has closed both Martin Bright and Newcastle Bar Mill (Feb 09) (although also related to Smorgon Steel integration plans) Outlook for demand is highly uncertain, but is increasingly linked to a range of stimulus packages. Spare capacity is up with utilised capacity falling according to the Australian Steel Institute.10

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HHHooowww hhhaaasss ooouuurrr iiinnnddduuussstttrrryyy rrreeessspppooonnndddeeeddd??? Response has been a significant reduction / slowdown and deferral of capital expenditure with the focus on maintaining operational performance. All non-essential capital has been stopped. BlueScope has stated that capital is limited to the reline and sinter plant upgrade , as well as operational integrity and safety. There has also been a reduction in overtime, casual and contractor hours and introduction of flexi leave. Vacancies are not being filled and there are redundancies. OneSteel’s “back to basics” campaign is aimed at improving cash, working capital and debt positions over the second half and getting the balance sheet, cost and operating parameters reset. The companies are moving quickly to ensure the operating cost base is in line with the market environment. But this will militate against future recovery. How should Australian producers be positioning to take advantage of future growth? Global steel industry has surprised commentators with larger than expected production cuts. OneSteel reported in February and April that sales continue to be below expectation due to further inventory destocking and lower underlying demand. Compounding this problem is a level of excess inventory held by most steel makers which is higher than the normal average. While production costs are coming into play, the effects of these will not be seen until early 2009 when any reductions in production costs have flowed through the complete supply

February Updates by OneSteel and BlueScope

Demand: • Export market limited and prices low • Australasia – demand weaker than expected • North America – demand stalls • Asia – demand stalls apart from China.

Global steel prices:

• Global steel industry acts in cutting production. Destocking in North America. • Price falls evident since September 2008. More pronounced in November and December. • However, domestic prices in China have increased on improved demand /low inventories;

fiscal stimulus initiatives, earthquake rebuilding and significant increase in bank lending. Earnings:

• The outlook is for earnings to remain depressed until an improvement is evident in steel demand globally. Currently, the effect of global stimulus packages on steel demand is unclear. They need to translate into increased steel demand.

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chain. Barclay Capital predicts that production cuts by steelmakers following a period of destocking will support price stability and price rises once demand growth returns.11

HHHooowww ssshhhooouuulllddd GGGooovvveeerrrnnnmmmeeennnttt rrreeessspppooonnnddd tttooo aaassssssiiisssttt sssttteeeeeelll??? At a time when private sector demand is falling, stimulatory spending packages being implemented by governments - such as major infrastructure spending initiatives - are vital in filling some of the gap left by the withdrawal of private sector demand for the output of our industries. In the period ahead, government spending on nation building infrastructure investment will play an important role in mitigating the full impacts of the GFC, sustaining jobs and growth and stimulating a sustained recovery. In this context, trade policy will need to be properly regulated and enforced to ensure that trade remains free and fair in order to achieve these nation building goals. A major goal should be to avoid the risk of corrosive dumping of surplus production onto third markets at prices which may not reflect the true costs of production or where governments subsidize steel production. The build-up of large surplus stocks in countries such as China underlines this risk. In this context, it is notable that China has announced it will increase its export rebate on some steel products, including cold rolled coil, from 5% to 13% on 1 April 2009.12 Such policies risk undermining the support which our governments are providing our industries, workers and economies at this critical time and will promote retaliatory measures such as anti-dumping action and increased tariffs. Proving anti-dumping actions are often difficult, cumbersome and prolonged and serve to distract core business activity and investment.

Outlook

• Global and regional steel markets to continue to be weak with prices and demand

suppressed until signs of an international recovery are clearer;

• Signs the bottom has been passed in prices for spot iron ore and scrap moving off low points;

• In Australia, weak activity expected over the remainder of 2008—09 and into 2009-10.

• Companies’ are encouraged by state and Federal Government stimulus initiatives to

invest in infrastructure and boost residential and non-residential building activity. However, it is too early to tell the benefits from these initiatives.

• Improvements in availability of credit and confidence are key to a significant lift in activity.

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Two points: 1) Australia has made it harder rather than easier to determine dumping due to lack of country of origin data; 2) There is a suspicion amongst stakeholders after a recent pork industry case that government may be reluctant to fully utilise existing safeguards powers in the case of injurious surges of imports. BlueScope has always made clear that it fully supports the use of WTO-compliant protections such as anti-dumping and safeguards measures. As outlined by BlueScope Steel in their submission to the Mortimer review: "The safeguards provisions in the GATT and the WTO Agreement on safeguards were designed precisely to enable Governments to use temporary trade barriers to provide relief where import surges injure or threaten to injure domestic producers. Such measures are designed to provide breathing space while industries re-adjust to manage these conditions. "BlueScope Steel believes the Government needs to be able to enforce its WTO rights as it wishes and based on the merits of each individual case."

Updating our anti-dumping laws and their administration and application is important and fully utilising existing countervailing measures is obvious. At the same time, these responses are by definition reactive and defensive measures rather than based on promoting the competitive strengths of our own industry.

Boris Baradi is an AWU member and union delegate at BlueScope Port Kembla. “ I’ve been in the steel industry for 29 years and I’ve never seen it this bad. It is quite worrying.” “There is a fair degree of angst in the workplace. There is a fair degree of uncertainty. We’re finding we’re not able to sell as much of our product as we once were and rumours are flying around that we might have to shut down the plant for a month or two.” “You would think that buying Australian produced steel has to benefit all of us because it can create and boost jobs and improve our standard of living.” “I think that if BlueScope was to shut down the Port Kembla plant for a month or two we would be in grave danger of not reopening.” “ But the company is now in such a tough position it may be left with no alternative but to close down for a while.” “Is this the type of legacy we want to leave behind for our children? I for one don’t want to explain to my children how our generation let this happen.” “My greatest fear – I think it is the fear of all who work in manufacturing – not just steel, but aluminium, gas and other industries – is to explain to our families how we couldn’t sell our superior product to anyone for any price. How can we let that happen?”

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The Australian steel industry has been one of the earliest hit by the current economic downturn. In the context of the GFC, a more effective strategy therefore may be to use a model which serves to offer our own producers first right of refusal - or as a member of consortia of suppliers including local producers - to meet domestic market requirements quickly following government announced infrastructure and stimulus spending aimed at sustaining output and investment. There may be no need for a formal agreement to achieve this but an effective arrangement guided by a number of criteria is outlined below. If product cannot be sourced locally, and at competitive prices (which the lower exchange rate should support) government tenders would then be opened up to international bidding at the lowest tariff rate applicable. The point is that local suppliers are not simply bypassed through the procurement process and every opportunity is provided them to supply quality product at competitive prices. This approach goes no further and could be applied in a similar way to Buy American provisions, which "shall be applied in a manner consistent with United States obligations under international agreements".13

In fact, Australia’s peak industry body for steel urges the Australian Government to allow Australian steel detailers, designers, fabricators, manufacturers and distributors’ first preference for any Government sponsored or funded project work to flow from its economic stimulus packages. The call from the Australian Steel Institute (ASI), which represents sectors across the entire steel supply value chain, (including the full spectrum of steel industry from the steel mills and manufacturers to the education sector14) builds on strong calls from Australian unions for the Rudd Government’s stimulus package to do what it is designed to do - that is support the Australian economy by maintaining skills and employment in Australia. The ASI calls for the Federal and State Governments to recognise the relationship between Government infrastructure spending to stimulate the economy and taking advantage of the Australian steel industry’s capability and capacity by adopting an Australian Jobs First preferential policy.15 ASI is also concerned to ensure that its stance is not about promoting protection, but rather opportunities for Australian steel suppliers.16

Infrastructure Australia

The list of Nation Building projects being developed by Infrastructure Australia must include a very substantial Australian made dimension. These projects are expected to be included as part of the Government’s Nation Building Stage 3 projects and as part of the 2009-10 Budget. It is essential that full advantage is taken to support local suppliers in these plans and the case can be made to do so in the response to the GFC: However, support for local suppliers has not been the main focus of Infrastructure Australia. As its primary focus, Infrastructure Australia has assessed the benefit of projects in terms of their contribution as an investment to national productivity by easing capacity constraints rather than also as an important investment in activity and local jobs in the supply of these nation building projects. Government must address this issue.

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TTThhheee 111000 PPPoooiiinnnttt PPPlllaaannn The AWU supports the principle of conditionality on government spending designed to maximize job retention and demand for Australian produced goods and services and to tap into the competitiveness of local supply. However, in practice the AWU is not advocating protection in order to seek to achieve these goals, but rather the objective application of a range of available measures:

• Declare steel as a strategic industry and input to Nation Building projects for the duration of the GFC, including possible production bounties and recourse to steel industry (infrastructure) bonds to finance these projects:

o Aimed at generating a fast start to economic recovery and deep impact for the local

economy and lessen pressure on the balance of payments. Ask how does the tender stimulate economy? Contribute to the economy along the supply chain? Syndication with local suppliers will lesson risk for project completion and expedite delivery;

o Local sourcing generates a stronger economic multiplier in additional jobs created, valued added production, increased tax revenue, and avoids welfare payments;

o Government can insist on local supply for infrastructure projects consistent with competitive costing and international agreements;

o Reward supply on time and on budget with production bounties on certain products for a defined period in order to meet national interest goals;

o Issue government backed steel industry (infrastructure) bonds to finance production and investment. Access to Australian (Aussie) steel bonds will assist financing; and

Steel Supports Jobs

Research completed by the Industry Capability Network found that for every A$1 million of new or retained manufacturing business, 18 fulltime jobs are created. To this end, the ASI supports greater spending in the steel construction sector, already impacted deeply by the global financial crisis as this will provide immediate economic stimulus and job security. “To maximise the efficiency of the infrastructure stimulus package and to offset the reduction in taxation revenues already announced by the Government, it is essential that the Australian Jobs First provision be introduced as it will return on average $317,900 of tax revenue for every $1 million spent and also save $211,700 in welfare payments arising from job losses. “The Australian Jobs First policy would not ban imports, but simply make a preference provision to spend Australian taxpayers’ money on saving jobs in Australia. This is not an attack on the ‘level playing field’ platform which the ASI supports but a requirement that all Government infrastructure expenditure in the stimulus package should maximise job security throughout the vital steel industry chain and preserve capability gains in recent years from heavy investment in new technologies.” (ASI, Media Release, Peak steel body urges Australian jobs first,10 February 2009).

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o Matches competitors such as impacts of US Buy American17, but more transparent and not protectionist (see points on benchmarking below).

The Government’s major infrastructure plans to be unveiled in the 2009-10 Commonwealth Budget will provide the opportunity for Australia to have a fast start for economic recovery. Projects undertaken will have a deep impact and benefit to the economy if using local procurement. In fact, the Government will be able to judge the priority of programs (including procurement) based on the amount of stimulus they would provide in generating direct and indirect jobs, value added production, tax revenues and lessen pressure on the current account.. In addition, when projects are put out to competitive tender and / or public, private partnerships, tenders and expressions of interests should outline the stimulus generated for the economy. That is, assessment of procurement should indicate the contribution to the local economy at every stage along the supply chain, including component suppliers. A linked idea is to ensure ease of credit and project funding and lesson risk in project completion which local sourcing can facilitate. Syndication with local suppliers may also be able to expedite delivery by foreign supply. Access to Australian steel bonds would provide an additional funding avenue for local suppliers and consortia and allow the public to have a direct stake in the nation building rebuild. The rebuild of Australia’s infrastructure will also assist our trading partners where local suppliers can stimulate demand for a range of goods and services and trade in goods and services with local suppliers.

• Recognise and acknowledge the international competitiveness of local steel

industry by comparison to a world benchmark comparator price reflecting true cost of production

o Accounting for relative price, quality and cost of production (as indicators of

competitiveness) Australian steel can be benchmarked for comparison against a world price adjusted for production costs. Where overseas competitors are offering supply at lower than the adjusted world benchmark price, it is most likely subsided product and should not benefit from being included in supplying winning tenders. In fact, recourse to countervailing duties may be required.

o If the domestic steel price is equivalent to the adjusted benchmark price (ie within a margin to reflect the true cost of production) local supply should be at no disadvantage to securing local contracts (when transport, export subsidies etc are factored in) and therefore should be preferred as part of tender arrangements. The result should be Australian projects will be paying no less than the adjusted world price for steel rather than a price which does not reflect the true cost of production.

o This would feed into Nation Building industry policy plans implemented by the Federal Government (as outlined above) and the procurement by the states with greater coordination (see below).;

o Still abiding by obligations under international agreements and WTO derogations for government procurement; and

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o More cost reflective and less injurious than US policies as amended by President Obama which reflect local US costs. 18

• To assist with above, establish a Steel Price Monitor to provide real time

information on prices, production costs, demand conditions and transparency in assessment of dumping cases.

o The Steel Price Monitor would provide real time information on prices, supply,

demand and production costs providing greater transparency in tendering; o Address concerns regarding timeliness and completeness in data used by

authorities to assess concerns regarding suspected dumping. o If imports are lower than the world benchmark steel price, there is prime facie

evidence of dumping, triggering countervailing duties / other penalties. o For example, China is offering rebates on VAT payments to exporters at part of its

2009-10 steel plan, which risks granting a double digit price advantage to Chinese suppliers, which would swamp Australian producer margins.19

o Recourse to countervailing duties may be required in these circumstances. o The AWU supports removing the requirement for the Productivity Commission to

determine that conditions exist prior to applying temporary safeguards. Allow the Minister the discretion to apply safeguards and countervailing duties on departmental advice.

• Strengthen AusIndustry’s policy of offering Full, Fair and Reasonable opportunity to local industry consistent with above goals

o and offer best practice, nationally consistent terms to local suppliers

coordinating state based procurement support and buy local policies including Victoria’s Industry Participation Policy (VIPP) and in WA and Qld.20

• Support innovation and exports

o promote innovation and exports through incentives such as accelerated

depreciation; o Industry assistance aimed at promoting energy efficiency and to transition under

the CPRS o Concessional lending and credit on favourable terms; and o Export bounties for a defined period to match tax subsidies for China’s steel exports

and elsewhere.

• Support for productivity, wage restraint and jobs

o Partnership with unions aimed at productivity improvements, and wage restraint in exchange for jobs, plant modernization and future investment;

o Finance and credit on favourable terms to support investment, including from superannuation funds.

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• Recognise steel’s importance as a strategic regional industry o As employer and community builder through supportive federal and state policies

agreed by COAG, local planning rules etc in regions which depend disproportionately on steel as employer and community leader in places like Port Kembla, Westernport, Whyalla and Newcastle).

• Promotion of a global sectoral steel agreement by Australia

o Endorsement of International Metalworkers’ Federation (IMF) model of

collaboration on steel and work program.21; o Australian steel plan promoted at APP.22 Sharing technical and performance data

among Partner countries will enable the Partnership to establish appropriate metrics, which will be used to measure the progress of Partners as they 1) identify key opportunities, 2) break down barriers, and 3) implement state-of-the-art and cost-effective clean technologies.

• Provisions introduced into Foreign Investment Review Board (FIRB) review of

future takeovers of manufacturing and supply capacity of steel in the national interest in addition to sourcing of raw materials (iron ore and coal)

o Steelmakers have been trying to secure supplies of iron ore. Chinese steel mills are

pursuing equity partnerships in Australian iron ore developments in return for a captive iron ore supply in the medium term.

o For example, a strategic stake in Rio Tinto by Chinalco on current terms will threaten local steel production because it will allow Chinalco to effectively negotiate with itself as seller and buyer, which places our industries at a competitive disadvantage to Chinese competitors.

o But also need to revise FIRB to strengthen review provisions regarding takeovers of (steel) manufacturing in addition to raw materials supply capacity threatening local steel production in the national interest. Strategic stakes in Australian steel may be taken by foreign producers to shut down rather than expand local capacity.

• A new industry policy for steel integrating with car plans, infrastructure

investment, renewable energy supply (wind farms, geothermal, solar), and water conservation projects.

o The benefits of steel to the renewables sector has been discounted for too long. A

strong, viable local industry will assist in the rapid deployment of a range of renewable energy facilities in the future, including wind farms, solar installations and in the construction of geothermal facilities and the essential infrastructure to link and supply them. 23

o Steel is also widely used in water conservation applications, including commercial and residential rainwater harvesting, water ‘grid’ projects, and irrigation and agricultural pipeline applications.

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Future Risks For Steel

While fundamentals remain positive over the longer term on the back of relatively well run entities and productive workforce there are a range of risks which policy can assist with addressing:

• Companies must continue to remain committed to current plans including to capital

expenditure plans such as o the BF No 5 reline and sinter plant upgrade; and Whyalla silica / Concentrator issue

(aimed at reducing silica in slurry) expected to be in place by Sept 09; o OneSteel’s Project Magnet Phase 2 (iron ore)

• Any weakening of conditions of employment as part of a ‘back to basics’ campaign.

• Any further impairment to balance sheet as a consequence of the CPRS and flow on

impacts delivering a ‘double whammy’ to companies dealing with the fall out from the GFC and to regions dependent upon the steel sector:

o While headline rate of assistance for integrated iron and steelmaking is 90 per cent,

effective rate could be only 65-75% per cent due to exclusion of some activities (this compares with free permits in the EU until at least 2012 (and probably much longer); and with no comparable carbon costs likely in China, India or Brazil in the short to medium term);

o 1.3 per cent decay in assistance every year will compound the shortfall; and o Scope 3 costs from steel suppliers are not addressed. The AWU would support greater

levels of assistance during transition through the GFC. (Also see AWU’s submission to the Senate’s Standing Committee on Economics).

• Foreign takeovers by larger international producers in order to reduce domestic (and

global) output and develop a ‘captive market’ just as stimulus packages and infrastructure spending is about to take off.

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Trends In Steel Guiding AWU

• Acknowledge the trends towards global consolidation and the critical juncture that the steel

sector has come to in Australia:

o A combination of lack of scale, trends to vertical integration abroad, the GFC (both on the demand side and available credit) and the CPRS (uncertainty and financial impacts) are combining to threaten the outlook for profitable, viable and major employing steel companies in Australia.

• Focus stimulus packages and infrastructure spending strategically to assist local steel

suppliers by hardwiring appropriate decision rules into tender arrangements for local suppliers and strong minimum content rules;

• A generous transition path for steel in the move to an ETS because of the double risks from

leakage and the impacts of the GFC which are compounding the impacts of each other on the outlook for profitability of the steel sector and therefore future investment (to be felt more acutely in industrial regions according to Frontier Economics modeling reported in the Australian, 26 March 2009, ‘associated with a rise in social and community problems as businesses close, unemployment levels rise and real wages and house prices fall’ (ETS 'to shrink regional growth', says secret NSW Government report, Lenore Taylor and Imre Salusinszky) ;

• Oppose strategic stakes in Australian steel by foreign companies, which will limit the ability

of local industry to expand and grow. Again, this is an extension of the impacts of the GFC combining with the risk of offshoring by our producers as a consequence of the GFC.

• Maintain as many domestic operations as possible in order to retain capacity to supply

future orders. The risk of more operations becoming “non-essential” is clear;

• Ensure that credit from banks and lenders is being extended on terms which will facilitate expansion rather than rationalisation in the sector.

• Get steel onto G-20’s agenda for action in the context of the GFC and climate change in the

lead up to Copenhagen.

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AWU Playing Its Part

• Hosting a meeting of global steel unions to consider the outlook for the sector in the context

of the GFC and climate change response and to make recommendations in time for G20. In particular the need for a clear sectoral focus on steel and trends regarding the international response to the GFC and climate change and the introduction of emissions trading which can feed into G20 deliberations. (Steel is green as the wind, Paul Howes, National Secretary, AWU, 25 March 2009, http://www.awu.net.au/248_2.html)

• Meeting with industry on developing a strategy to present to government promoting local content and production in the supply of steel to the domestic economy and ways to integrate the sector more in global supply chains:

o Productive capacity must be maintained and not disposed of if we are to have any

hope of supplying locally; o The threat to local industry from the move to global consolidation in the steel sector

must be recognised and responded to; o Credit must be maintained by banks and lending institutions (this has been

recognised as the major impediment to producers plans);

• Meeting with Government to make a similar case for policies which will provide first preference to Australian producers when bidding for contracts that will address the threat from dumping of subsided overseas output while still providing value for money in procurement.

• Need for an effective transition plan for CPRS and acknowledgment of the cost effects on

individual businesses and to regions:

o Ensure that the CPRS has sufficient protection and assistance measures hardwired into the legislation such that the financial circumstances of our steel industries can be taken fully into account (by for example the opportunity for a review by an independent statutory (appointed) body such as an appeals panel which would review decisions by the Australian Climate Change Regulatory Authority charged with overseeing assistance to EITEs under the scheme or building on the independent Expert Advisory Committee to hear disputes in addition to the Productivity Commission charged with reviewing assistance);

• Ensure that the Government is aware that the impact of the scheme on emissions intensive and trade exposed industries across industrial regions, including central Queensland, the Hunter and Illawarra in NSW and Victoria's Gippsland, which would be "very high" and "very severe" according to recent findings on a disproportionate impact on regions compared to the economy as a whole. (ETS 'to shrink regional growth', says secret NSW Government report, Lenore Taylor and Imre Salusinszky March 26, 2009, The Australian).

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CCCooonnncccllluuusssiiiooonnn The AWU has been a part of the industrialisation of Australia for well over a century. We are proud of our roots deep within the iron and steel industries. But we are at a turning point in Australia. Traditional manufacturing - once about stability in our economy - risks becoming code for economic disaster. And yet our industries are competitive and viable, but a couple of things need to happen to ensure their future: 1) Assistance to the steel industry to steer through the GFC, GER and CPRS through a range of measures outlined in the AWU’s 10 Point Plan; 2) Ensure a level playing field with cheap subsided imports through getting tough on dumping and promoting international agreements which will prohibit subsided product on international markets and support for our own exports. At a time when the economy is looking to sustain jobs and growth, the measures outlined in the AWU’s 10 Point Plan will assist in maximizing local content, minimizing import dependency and easing impacts on the balance of payments (serving to partially offset net borrowings) and offer leadership toward achieving Australia’s Nation Building Agenda. It is time to once again plan for the future of our steel industry by realizing the capacity and capability of the Australian steel industry, by having a very good understanding of the industry’s competitiveness and the efforts made by Australian industry and workers, the value of steel’s contribution to the supply chain and benefits to jobs, value adding and revenues, investing in technology to maintain and secure its future, and the cost of dumping and subsidized exports by foreign producers to the viability of the local industry. Policy prescriptions flow from this work constituting a new steel plan for the 21st century. This paper has outlined a number of areas of focus for future work in the 10 Point Plan. The AWU stands ready to assist in this effort in cooperation with the Rudd Government.

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Appendix A – Trends in Australian Steel Consolidation in the steel industry is progressing. In 2006 the top 5 steel producers had 19% global market share. The figure below shows increasing concentration. In 2007 the top 15 producers share of total production increased to 34 per cent. Tata Steel’s acquisition of Corus Group contributed to the consolidation.

In Australia the major consolidation of Smorgon Steel and OneSteel has left two steel manufacturers. Australia was the world’s 22nd largest steel producer1 with 7.9 million tonnes crude steel production in 20072. The domestic industry has stagnated; crude steel production was 7.6 million tonnes in 1980. OneSteel’s3 Whyalla Steelwork’s output was 1.15 million tonnes and BlueScope4 Port Kembla steel potential output was 5.3 million tonnes 2007-08. Port Kembla had permanent 3,400 employees and OneSteel’s manufacturing workforce was 4,400. In volume terms Australia is a net importer of steel5. Around 25% of all steel used in Australia is imported.6

1 Australia has a heavy reliance on blast furnace production, with blast furnaces producing approximately 80% of Australian steel in 2007. Share of electric arc production has remained around 20 per cent of total production.

2 World Steel Association, Steel in Figures 2008, 2ND edition.

3 OneSteel Annual Report 2008, Transforming OneSteel.

4 BlueScope Financial Report 2007/08.

5 Exports in World Steel in Figures are based on a broad definition of the steel industry and its products, including ingots, semi-finished products, hot-rolled and cold-finished products, tubes, wire, and unworked

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The table below illustrates regional trade flows in 2007. Australia and New Zealand comprise Oceania. However New Zealand produced only 0.8 million tonnes in 2007 and intraregional trade was only 0.2 million tonnes. The region was at zero balance or a net importer of steel from all regions except NAFTA. The largest negative trade balance was with Other Asia (Korea excluding Japan and China).

Oceania exported 0.3 million tonnes to Asia and imported 1.3 million tonnes. This accounted for over half of the deficit.

castings and forgings. The table comprises the exports of 37 countries, which represents approximately 90 % of total world trade in 2006. Production of finished steel, where not available from national sources, is calculated from crude steel production, taking into account the continuous casting ratio.

6 AWU Review of the Steel Industry 2004.

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Endnotes 1 Senator Kim Carr is Minister for Innovation, Industry, Science and Research, article that appeared in the Melbourne Age on 9 April 2008 2 Richard Johns is the principal of Australian Automotive Intelligence 3 See speeches and resolutions on the jobs emergency from the AWU’s Stronger Together National Conference, 2009, http://www.awu.net.au/172.html 4 BlueScope’s submission to Mortimer Inquiry

5 The USW is one of the first industrial unions to support comprehensive climate change legislation and is a leader in the labor movement on the environment. Gerard serves as a commissioner on the National Commission on Energy Policy and is a founding member of the Blue Green Alliance (BGA). The Alliance brings together unions and environmental groups to plan a new way forward through the promotion of policy solutions that spur growth and investment in green technologies and products produced in America.

6 International Metalworkers’ Federation, http://www.imfmetal.org/main/index.cfm 7 OneSteel Market Update, January 2009 8 Asia-Pacific Partnership on Clean Development and Climate, Steel Task Force Action Plan 9 See OneSteel’s 1H09 Results Presentation, Half Year ended 31 December 2009, Geoff Plummer, Managing Director and CEO, 17 February 2009; and BlueScope Steel’s, First Half FY2009 Results Presentation, Period Ended 31 December 2008, Paul O’Malley, Managing Director and CEO, 23 February 2009. 10 Steel Australia March 2009 11 OneSteel, Steel and Tube: Market Update Jan 09. 12 The recent Chinese export rebate increase (from 5% to 13%) applies to Cold Rolled Coil and galvanised coil greater than 3mm within BlueScope’s range. The export rebate remains at 5% for all other products in BlueScope's range, with the exception of Hot Rolled Coil, which currently has zero rebate. 13 American Recovery and Reinvestment Act 2009, Section 1605 (d): "This section shall be applied in a manner consistent with US obligations under international agreements." Buy America provisions require purchase of American iron, steel and relevant manufacturing goods for public works projects funded by the bill. Language requiring U.S. commitment to our international obligations is included, preserving the existing waivers in the WTO Government Procurement Agreement and our bilateral trade agreements. Under the Buy-American section of the stimulus bill, the Buy-American condition can be waived if it violates the United States' obligations under the WTO's procurement agreement and its FTAs. Also, it can be waived if applying the condition is not in the public interest, or if the goods cannot be produced in the US in sufficient quantity or satisfactory quality, or if using the US-made products will increase the project cost by 25% or more. 14 . ASI is a not-for-profit organisation with three sustaining members BlueScope Steel, OneSteel and Fletcher Group and a tiered membership structure through all other sectors. http://www.steel.org.au/inside.asp?ID=393&pnav=393 15 Peak steel body urges Australian jobs first, Australian Steel Institute, February 2009 16 Peak steel body seeks a ‘fair go’ to save jobs

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Australia’s peak industry body for steel is renewing its call to the Australian Government to set the right example to local industry by vigorously pursuing their own policy of providing Full, Fair and Reasonable opportunity to local industry on taxpayer funded projects. The latest call from the Australian Steel Institute (ASI) urges that the Government give local businesses a ‘fair go’ by introducing an Australian Jobs First policy to its recently announced infrastructure stimulus packages. “The ASI is not promoting protectionism, as incorrectly reported, and has long supported free trade policies,” said ASI Chief Executive, Don McDonald. “We maintain that it is reasonable for governments to ensure Australian industry is afforded early and meaningful engagement in bidding for infrastructure projects to ensure that the stimulus package does what it is intended to do, help Australians keep their jobs. “We think there is more that both the Federal and State governments can do to provide greater opportunity and encouragement to include Australian content in their stimulus packages.” He said that an Australian Jobs First policy would not imply a ban on imports, but simply make a preference provision to spend Australian taxpayers’ money on saving jobs in Australia. “This is about all Government infrastructure expenditure in the stimulus package to maximize job security throughout the vital steel industry chain,” Mr McDonald said. “Most of our members are SMEs like fabrication shops, detailer drafting offices, galvanisers, building contractors, distributors and service centres with very tight operating resources. “In effect, we are only asking for the government and subsequently the contracting chain to observe the existing AusIndustry policy of providing Full, Fair and Reasonable opportunity to local industry, a policy which the ASI has been supporting and publicly advocating for some time, but does not always happen.” Further details, contact ASI’s National Industry Development Manager, Ian Cairns on 0417 426 002 or email ianc@steel.org.au 26 February 2009 17 eg, the US’s American Recovery and Reinvestment Act 2009, Section 1605 provides for the use of American iron, steel and manufactured goods, (except in certain instances and the US’s international agreements). 18 Consistent with section 1605 (3) of the American recovery and Reinvestment Act 2009 (Use of American Iron, Steel, and Manufactured Goods): “inclusion of iron, steel, and manufactured goods produced in the United States will increase the cost of the overall project by more than 25 percent.” 19 Tax rebates figure high in China's new steel 'revival plan, 24 March 2009, www.steelbb.com'

20 Victorian Industry Participation Policy (VIPP) The Victorian Industry Participation Policy (VIPP) is a State Government of Victoria's initiative with the intent to foster industry development by encouraging bidders to genuinely and systematically consider local (Australian and New Zealand) SME suppliers. http://www.diird.vic.gov.au/CORPLIVE/STANDARD/PC_65008.html. The VIPP offers a 40 per cent local content over whole of life (including maintenance) and 10 per cent margin. WA has a Building Local Industry Policy http://www.commerce.wa.gov.au/ScienceInnovation/PDF/Publications/Industry%20Development/ID_Building_Local_Industry_Policy.pdf and Qld has a Local Industry Policy and the application of compulsory Local Industry Participation Plans for government procurement above a threshold. See http://www.commerce.wa.gov.au/ScienceInnovation/PDF/Publications/Industry%20Development/ID_Building_Local_Industry_Policy.pdf 21 International Metalworkers Federation, Steel Action Group Meeting, November 5-7 2008, Tokyo, Japan: Climate Change, Securing jobs for a better future in the steel industry: Refer to “Steel unions agree to environmental global strategy” http://www.imfmetal.org/main/index.cfm?n=47&l=2&c=18554

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22 Asia-Pacific Partnership on Clean Development and Climate, Steel Task Force Action Plan

23 Steel is green as the wind, Paul Howes, National Secretary, AWU, 25 March 2009, http://www.awu.net.au/248_2.html