Steel: The Future

Australia must safeguard its borders and economy by investing in the re-establishment of a world-leading steel industry. By Will Jefferies

The COVID-19 crisis is demonstrating the vulnerability of our supply chains, causing us to question how well they would serve us in a war. 

Last year, 17 of Australia’s leading engineers came together to answer that question. Their findings were disturbing. 

“Australia would suffer massive upheaval in an unspecified global crisis” with its “essential services failing in the space of just three months,” warned the organiser of the exercise, former Defence Director of Preparedness Cheryl Durrant. 

Responding to this shortfall, Durrant asserted that Australia must understand its supply chain vulnerabilities and decide which strategic production capabilities need to be established domestically to “prepare for the unexpected”. 

Her conclusion: Australia cannot continue to “take the attitude – she’ll be right.”

The production of steel is the critical backbone of many industrial value chains, and an essential base material for strategically important sectors such as the automobile, aerospace and shipbuilding industries. As such, steel should be one focus of a bipartisan push to strengthen Australia’s ability to produce and defend itself given a breakdown in global supply chains. 

Achieving this will not only bolster Australia’s defensive abilities but will assist in shifting our economy away from overreliance on the extraction of mineral resources. 

Australia produces more iron ore and metallurgical coal (the key inputs into the production of steel) than any other nation, yet it produces only 0.3% of the world’s steel. As a result, Australia is heavily reliant on steel imports from China and has missed out on the opportunity to value-add its two largest exports by more than 50%. 

In the event of a global supply chain crisis – an increasingly likely scenario amidst heightened global scepticism of the US-led liberal international order – Australia would be hamstrung in its ability to produce enough arms, cars, tanks, planes, buildings, railways and other crucial forms of infrastructure to effectively defend itself. 

This is despite Australia’s unparalleled abundance of iron ore, metallurgical coal and natural gas used for the generation of cheap, reliable electricity required in steel smelting. 

Back when Australian policymakers integrated their adherence to economic rationalism with wider concerns regarding defence and supply chain stability, Australia’s steel industry played a crucial role in safeguarding our borders and productive capabilities. 

Following the opening of BHP’s first steelworks in Newcastle in 1915 and its subsequent expansion into Wollongong during the 1920s, BHP Chairman, Essington Lewis, travelled to Germany and Japan and realised the threat they posed to Australia.  

Returning to Australia before the outbreak of World War Two, Lewis was appointed to the Director General of the Department of Munitions and helped establish the Commonwealth Aircraft Corporation and numerous munitions facilities – which used BHP’s steel as one of the main inputs for the production of a range of Australian-made weapons including the Australian Cruiser Tank, the CAC Boomerang fighter aircraft and the Owen sub-machine gun. 

However, if war broke out today in say the South China Sea, Australia would be extremely vulnerable as the majority of our munitions and weapons would need to be imported by foreign owned and built ships.  

Although, if Australia established scalable steel and nuclear industries, much of this exposure could be reduced. Indeed, we might even be able to build our own submarines – rather than pay over $200 billion for French-made diesel ones. 

This is exactly what the Gorton government understood when it considered the merits of aluminium production in the early 1970s. A submission to the Gorton Cabinet found that exporting 1 million tonnes of bauxite earned $5 million; processed into alumina it earned $27 million; processed again into aluminium ingots it earned $120 million; and when processed into finished aluminium products it earned $600 million (in 1970 dollars).

It is the fundamental failure of Australian policymakers and business leaders to recognise the importance of maintaining a dynamic manufacturing sector committed to value-adding our abundance of mineral resources that explains why Australia was ranked 93rd in the latest Harvard Atlas of Economic Complexity behind African countries like Senegal; why the Australia Institute found that Australia’s manufacturing trade deficit had more than quadrupled since the turn of the century; and why Australia ranks last in the OECD on manufacturing self-sufficiency. 

Revitalising Australian manufacturing via the expansion of our domestic steel industry is by no means merely a pipe dream of protectionists and economic nationalists. 

International investors such as Sanjeev Gupta, who in 2017 purchased Arrium’s steel-making business in Whyalla, agrees that Australia can return to becoming a major steel and aluminium producer – especially considering forecasts of global steel production doubling over the next 30 years. 

In fact, Gupta claims that Australia exports enough iron ore to produce 500 million tonnes of steel a year, or about a quarter of the world’s annual production – a far cry from the 0.3% of global production Australia currently accounts for. 

Even environmentalists have recognised the benefits of Australian-made steel, considering 40% of Australia’s iron ore exports are made up of dirt (meaning that millions of tonnes of carbon emissions are wasted transporting dirt from Port Headland to China) - a statistic derived from the Managing Director of Project Iron Boomerang Shane Condon who has proposed to construct a rail-line between Australia’s largest iron ore fields (in the Pilbara) and coking coal fields (in the Bowen Basin) with steel mills at either end - a connection that has the potential to facilitate a world-leading consolidated steel supply chain in northern Australia.

By refining our iron ore into steel domestically, the tonnage of material exported for overseas processing would be significantly reduced – lowering shipping costs and benefitting the environment. 

Ultimately, the outbreak of COVID-19 has exposed major vulnerabilities around global supply chains, and placed Australia at a crossroads. 

Australia can continue to be an economy reliant on the export of iron ore and coal, and the import of multiple critical goods. Or we can address our vulnerability by harnessing the value of our raw materials and processing them domestically.

This shift would pave the way for Australia to become far more self-sufficient and capable of defending itself through the re-establishment of our manufacturing sector and productive capabilities.