A new steel mill ?

Many people in Wollongong will be scratching their heads in disbelief.   BlueScope Steel is halving production, withdrawing from exports - and sacking 800 workers - and now Boulder Steel in Queensland is proposing to construct a new mill, employ 1800 staff - and produce 5 million tonnes of steel a year.

The economics of both operations depend on how each company is structured !

When BHP started steel production in Wollongong it owned the coal mines and it owned the iron ore facilities, hence the price it paid for coal and iron ore was simply an internal book entry.   There is every liklihood that the people behind Boulder Steel intend to mine their own coal - and have at least a financial interest in iron ore production.

When BHP joined the joint venture that became BHP-Billiton the steel plants were spun off and became separate entities - and as such they now bought their coal and iron ore from their former parent - at world prices.

It is a fact of life that when BlueScope steel announced a billion dollar loss, at the same time BHP-Billiton was announcing profits of billions of dollars.     The same price rises for coal and iron ore that are crippling BlueScope are expanding the BHP-Billiton bottom line.

There are advantages in building a new plant.  For a start, it will be less costly to include electricity cogeneration into the design, and as well as steel this plant will have a profit factor from feeding electricity into the Queensland power grid.

Another important factor is retention of steel making skills within the Australian workforce.   It would be quite logical for those retrenched in Wollongong to be eagerly accepted by Boulder in Queensland because they bring with them valuable skills and knowledge.

The ultimate fate of BlueScope will depend on many factors.   It certainly will not welcome a new competitor for the Australian domestic market, but  the Australian dollar's rise may be short lived - and if China's expansion stumbles the price of iron ore and coal will drop sharply - and BlueScope's mill is well run and competitive by world standards.

Even thinking of starting a new steel mill may surprise some people, but it  is likely that the Boulder people have done their homework - and it does erase the lie that steel manufacturing in Australia is a dead issue !