Magazine of the Socialist Party in Australia

The steel industry crisis explained

In April, steel manufacturer Arrium went into voluntary administration, potentially threatening 8,000 jobs – 3,000 in Whyalla, South Australia, where the steelworks are. Arrium has been hit by declining iron ore prices in their mining arm, and are losing money through their steelworks. The closure of the steelworks would devastate Whyalla.

Global crisis

Australia is feeling the impact of a global steel crisis, driven by overproduction. Global steel producing capacity has doubled in the last decade and a half, from 1,060 million metric tonnes (mmt) worldwide in 2000 to 2,164mmt in 2013 – but demand only reached 1,648mmt in 2013. Almost half of world steel capacity is in China, supplying the construction sector.

China’s need to purchase iron ore to make steel has insulated Australia from the worst effects of the global financial crisis, which have been felt throughout the rest of the world. Many commentators have looked to China as a saviour of Australian capitalism. However, a few, ‘The Socialist’ included, recognised that this created a two-speed economy.

The mining boom, driven by overseas purchases of raw materials, raised the value of the Australian dollar (AUD). The high AUD meant that goods manufactured were more expensive on the world market. While mining boomed, manufacturing – including steel – has been decimated.

Now the Chinese construction boom is ending, and their local demand for steel is at the lowest in decades. Reduced growth in iron ore demand is signalling the end of the Australian mining boom, and steel prices fell in China by 31% during 2015.

To reduce stockpiles of the huge amount of steel they produce, China has been exporting cheap steel overseas, resulting in low prices and low profitability for competing steel manufacturers around the world. ‘Dumping’ of underpriced steel in foreign markets is being used to hold off catastrophe in China and weaken competitors internationally.

Under capitalism, having too much is a disaster. Global steel production is dropping, currently at two-thirds of actual capacity. In the UK 15,000 jobs are at risk as Tata Steel seeks to sell off its UK plants. Any capitalist purchaser of Tata Steel’s holdings is expected to shed jobs and ultimately destroy the UK steel industry.

Chinese steel prices have risen again since April, but commentators caution that the rise sits on a fundamental overcapacity. While some predict the salvation of the industry, the immediate driver of the crisis – the end of China’s construction boom – is still there.

Unions on side with bosses

The right-wing Australian Workers Union (AWU) represents most Australian steelworkers. They take the same position on steel’s sustainability as industry bosses, and have presided over thousands of job losses before the latest crisis. Their only answers are to ask the government to invest in steel and to call for ‘anti-dumping’ measures against China.

After Arrium went into administration, the AWU forced a change in the administrators, to the firm that handled Ansett’s administration. They hailed this as a ‘victory’. However, any administrator’s first priority is to ensure investors and workers are paid out, not to keep jobs.

The AWU’s role at the BlueScope Steel plant at Port Kembla last year was to do everything management asked of them. BlueScope presented workers with an ultimatum – agree to 500 job losses (saving the company an estimated $40m towards a goal of $200m), or lose 5000 jobs as the company shuts down a blast furnace and imports raw steel rather than making it locally.

The AWU agreed to the job losses, a 3-year pay freeze, and a range of other management wishes. Many workers were outraged at the weak position of the union, such as allowing BlueScope to use casuals to replace supposed redundancies. The AWU was forced to delay a vote on the measures until they were sure it would go through. At one site it passed by only seven votes.

AWU leaders threatened workers with the closure of the blast furnace if they didn’t agree to the sell out, but now there is no guarantee it won’t be closed anyway. BlueScope’s biggest shareholder describes staying open as an “interim measure”.

While telling workers they had to find $200m in savings, BlueScope was investing in a US steel mill to the tune of $720m USD and proposing up to $8m in bonuses for CEO Paul O’Malley, whose base pay is $1.8m per year.

The Australian Manufacturing Workers Union (AMWU), which also represents some Port Kembla workers, described the AWU’s ‘deal’ as “a major contribution from the employees and the unions to get to the savings that we’ve been [told to] look for from BlueScope.” The capitalist press have been ecstatic with praise.

Protectionist measures

The Federal government response to the steel industry crisis has been lacklustre. As late as April, trade minister Steve Ciobo stated that Chinese steel in the market is good because it is made with Australian iron ore. It seems the trade minister expects China to keep the mining boom running while most commentators agree it has already peaked.

The Liberals are arguing amongst themselves whether to prop-up the steel industry, with Christopher Pyne, whose voter base is in South Australia, supporting intervention. Turnbull has given Arrium a contract to replace 1200 kilometres of rail line and committed to using “Australian steel” in their new submarines. This last concession is unlikely to save Arrium as the steel needed for that project requires upgrades Arrium can’t afford.

The ALP have called for the tightening of anti-dumping laws, more use of local steel in government projects and the creation of a national steel supplier advocate. The Greens are calling for a guarantee of 90% local steel to be used in government projects and for the scrapping of the anti-protectionist Trans-Pacific Partnership (TPP) trade deal.

None of these proposals offer any viable solutions to the crisis. Control of the industry is necessary if the issues at hand are to be dealt with. At the moment the industry is owned and controlled by profiteers. The alternative is to nationalise the steel industry under the control and management of workers. This way local steel can be produced for construction and manufacturing without a capitalist middle-man reaping a profit.

In the UK the demand for nationalisation, pushed for by the Socialist Party, has forced the Tory government to go against their fundamental principles and offer to take on a 25% government stake in any buyout of Tata Steel – an offer the AWU has so far failed to secure for Arrium. With industrial action it is possible to go much further.

A socialist approach

Securing local steel in government contracts only means subsiding private profits with public money. Merely scrapping the TPP – which China isn’t involved in anyway – won’t halt the oversupply, and jobs will still be shed whenever profitability can be increased.

Protectionist measures such as tariffs and anti-dumping laws force prices to rise locally. Local capitalists will feel no pressure to address inefficiencies as they rort consumers, and have no reason to prioritise jobs and reinvestment in industry over their own profits.

Protectionism is the reason China is exporting cheap steel to begin with. A trade war is underway. Australian protectionism will raise the burden on Chinese workers and encourage retaliation while providing no guarantee for workers here. It is bosses, not workers, who are ‘protected’.

More than $2 billion of Arrium’s debt is to financiers, largely the big banks. Instead of the company being administered to pay the debts of failing capitalists, it should be nationalised, with compensation paid to creditors only on the basis of proven need – focusing on Arrium’s unpaid worker entitlements and small suppliers instead of big investors.

Nationalisation under democratic workers control would let us integrate the steel industry into an economic plan that seeks to provide for society’s needs. Nationalised steel could feed plans to expand rail transport and build high-quality public housing to end the housing crisis.

Further, any serious approach to climate change will require the construction of green power plants to replace coal power. A 2010 BeyondZero study estimated this could require 20-30% of Australia’s annual steel production over ten years. Clearly the industry is essential, despite the fact that private owners find it insufficiently profitable.

A fight back by workers could force concessions from the government and capitalists alike, but it requires a rejection of the current union leaders and their pro-capitalist politics. This crisis – of having too much to go around! – is a crisis of capitalism. The fight for jobs and economic security cannot be won without socialism. We need militant unionism and a political alternative to the major parties to fight for the democratic public ownership of industry and a plan to provide jobs, homes and services for everyone.

By David Elliott