Trouble Ahead…Possible…Australian Steel Industry Losing Major Contracts to China

A potentially very serious problem has popped up in Australia, one that has already begun to impact the country’s major steel manufacturers. It is as follows …

Many of Australia’s steel contracts – call them BIG steel contracts – are being awarded to foreign companies instead of local manufacturers. In fact, Chinese state-run-and-subsidized firms like the giant Ansteel have been the fortunate recipients of some of the big money deals.

The news about Australian contracts being awarded to overseas companies became known when a Perth-based mining company, Gindalbie Metals, freely and openly admitted that it had imported steel for its new $2.6 billion Karara iron ore project in Western Australia from the Chinese state-supported company mentioned earlier – Ansteel.

A spokesperson for Gindalbie Metals stated that, in the interests of sound business practices, it made perfect sense to import the steel from the Chinese company. Why … because the cost of steel from any local manufacturer is currently three times more expensive than the steel imported from China.

The Australian government and union leaders, as well, said, that while the cost of doing business is higher in Australia than it is in China, the real reason why Gindalbie Metals gave the contract to Ansteel  is because the Chinese metal-producing giant is one of Gindalbie Metals biggest shareholders.

Now, that may be true – and is true – but the fact remains Australian steel manufacturers are losing major contracts to companies in China and elsewhere. And that, over time, can – and will – impact the Australian economy, especially in the western part of the country.

The Australian Steel Institute, a trade organization representing Australian steel manufacturers has joined the fight, as well. In a recently-released statement, Ian Cairns, the organization’s industry development manager, said he understood why Australian contractors and fabricators would buy steel from Chinese companies and from other foreign companies, too, but then called on the Australian government to put pressure on local companies to “buy local steel.”

Cairns emphasized the importance of doing business with Australian steel manufacturers, especially during these tough economic times,. According to Cairns, many Australian-based manufacturers are running their businesses at about 50% capacity. And that is not good.

Now, the call by government officials, union leaders and industry spokespersons to “buy locally” is great. But, some problems need to be acknowledged and addressed before companies “do the right thing” and award contracts locally.

There is no doubt – none whatsoever – that the cost of doing business in Australia dramatically affects the ability of local companies to compete globally. Australian steelmakers and fabricators pay higher wages … higher taxes …and are subject to significantly tougher government regulations than exists anywhere in China or elsewhere.

That problem is not going to just disappear. Steps need to be taken to enable Australian companies to compete fairly for Australian steel contracts.

Government leaders have been listening … and are concerned. Perhaps their concern will lead to real changes in the near future.

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