Why Are We Doing This To Ourselves?

[Dagabond]

It's definately China there currently in a major BOOM period that is completely undercutting all manufacturing here and abroad.

If your in mining your sitting on a golden mine...excuss the pun...

Bloody interesting Transcript from Inside Business:

http://www.abc.net.au/insidebusiness/conte...06/s1578550.htm

Video shortcut:

http://www.abc.net.au/reslib/200602/r73778_206300.asx

Nerves of steel needed as metallic bubble bursts

Date : 26/02/2006

Reporter: Stephen Long

 

 

ALAN KOHLER: The past few months have been more than a little unsettling for Australian steel companies and their investors. It's fair to say the current reporting season has done little to calm the market's frayed nerves. Having been pumped up by the voracious appetite in China for anything metallic, the steel bubble looks to have been burst by soaring costs and a slump in prices, as China itself has become a net exporter. Stephen Long reports.

STEPHEN LONG: This week was steel week, as BlueScope, OneSteel and Smorgon unveiled their results. But one way or another, from Port Kembla to Whyalla, the fortunes of the steel companies are being dictated by China.

RAY HORSBURGH: The whole steel industry in the world's been driven by China.

JEREMY SUTCLIFFE: China really is the issue. You read some predictions of the surplus production this year over and above apparent consumption in China. It's enormous.

KIRBY ADAMS: Chinese steel production has actually tripled in 10 years.

STEPHEN LONG: It's just over six years since BHP closed its Newcastle steelworks and at the time around the world, steel was a sick industry. Then came the Chinese economic boom, which was some tonic. As China's factories sucked up every available tonne, steel prices tripled and profits soared.

The boom encouraged a global round of takeovers with the world's number one, Mittal Steel, now stalking the world's number two, Arcelore.

LAKSHMI MITTAL: The merging of two giant steel companies and creating a very strong European base is very healthy news for the industry and consolidation.

STEPHEN LONG: But what China giveth, China taketh away.

STEVE JOHNSON: We think the business environment for these steel companies is going to be very tough for the foreseeable future and possibly very tough forever. It's a difficult business that they're in.

STEPHEN LONG: Last year, China forged a remarkable turnaround, becoming a net exporter of steel. For the steel-makers, its move from customer to competitor and the ensuing glut on world markets has sent prices tumbling. That's hurt BlueScope, its net profit down 38 per cent this half, with worse to come.

KIRBY ADAMS: Clearly the second half is going to be more challenging, as our upstream businesses at Port Kembla are caught in this pincer between skyrocketing raw material costs in the form of iron ore and coal and decreasing commodity prices of slab and hot-roll oil on the global market. This is putting real pressure on the profitability of Port Kembla.

STEPHEN LONG: At this week's media briefing, chief executive Kirby Adams told Inside Business there were signs of a turnaround.

KIRBY ADAMS: It would appear that the price declines are behind us and we've now reached some stability at least. The scrap-metal business Sims Group is picking up similar signals.

JEREMY SUTCLIFFE: We're now, after a quiet period, starting to see the phones beginning to ring again.

STEPHEN LONG: But others aren't so sure.

STEVE JOHNSON: There's capacity coming on stream as we speak and in this year, 2006, the Chinese will add 45 million tonnes of capacity and that's not the end of their plan. So it's definitely going to continue.

GEOFF PLUMMER: I think there might be a small movement in the near term. I'd be surprised if there was a strong rebound in the near term. I think there's still going to be a period where their supply and demand is going to mean that prices will be suppressed for some time on the flat product side.

STEPHEN LONG: Geoff Plummer runs OneSteel, but at the moment he might be ruing that company name, because he's got a job convincing investors there's more than one steel market. Yes, prices for flat steel used in cars and white goods are down, but not the long steel used in big engineering jobs.

GEOFF PLUMMER: We really see our products going into the sorts of things that are driving our markets at the moment. Engineering construction, reinforcing bars, structural steels, a lot of the steel that goes into the major reinforcing projects, minerals processing plants upgrades, and so on.

STEPHEN LONG: OneSteel's riding the mining boom, its first-half profit up 20 per cent. But the China syndrome that's lining the pockets of the miners is killing Australian manufacturing.

RAY HORSBURGH: Manufacturing, I think, is under competitive pressure which will be ongoing. I think the Australian manufacturing sector will face what happened to the footwear and textile industry a decade ago, where that manufacturing shifted offshore and the thing to be in is the distribution.

STEPHEN LONG: Investors fled Smorgon Steel this week after its straight-talking boss, Ray Horsburgh, tipped a slowdown in local manufacturing. But the trend's clear to anyone with eyes.

RAY HORSBURGH: The car industry's been rationalised. The white goods, the Hoovers and the Electroluxes of the world have rationalised the white good industry and they're all consolidating in China.

KIRBY ADAMS: Clearly one of my long-term worries is and continues to be the continuing decline of manufacturing in Australia, because as those businesses cannot compete with imported product for whatever reason, and they choose to shut down or relocate to Asia, not only do we lose the jobs as a nation, but we also lose the consumption of steel domestically.

STEPHEN LONG: Yet BlueScope's been accused of hastening that trend through its aggressive pricing. A 39 per cent increase last year in the price of tin plate used in canning had local customers up in arms, and now OneSteel, itself a major customer, has put BlueScope on notice.

GEOFF PLUMMER: At the moment there's some gap between what their offer is and what we're able to source from elsewhere, so we're continuing to work on that.

STEPHEN LONG: They're charging too much?

GEOFF PLUMMER: Their offer is not competitive at the moment, yes.

STEPHEN LONG: And if the prices they charge don't get more competitive?

GEOFF PLUMMER: Unfortunately, we'll be forced to find other sources of supply.

STEPHEN LONG: And there's no shortage of supply as the new Chinese mills churn it out. But that may change.

RAY HORSBURGH: I don't think it will be a permanent net export. If you look at the per capita consumption of steel, China today is where the US was about 1900, at about 100 kilograms per head of capital. The US and Japan run at about 600 kilograms per head of capita. Long term, their domestic market's going to chew up the rate of consumption at a huge rate.

STEPHEN LONG: But Smorgon is hedging its bets, targeting specialist products for the resources sector so it can cash in on the China boom one way or another.

RAY HORSBURGH: So our strategy's been to decommoditise, get into specialty sectors that won't face competition from competitive products of a commodity nature out of China.

STEPHEN LONG: As Chinese demand sent prices soaring, so too did the stock prices of the local steelcos. Now they're back down near the pack, even though by historical standards it's still boom times.

JEREMY SUTCLIFFE: Well, I think people have got short memories. In actual fact, it's pretty good for the industry right now. We're looking an '06 that's, you know, absent '05 is one of our best years.

STEPHEN LONG: Critics who still count the steel stocks as overvalued say that's just the point.

STEVE JOHNSON: Our point in this whole argument is that equilibrium is a long way from where current prices are. We expect these companies to earn reasonable returns on capital and not excessive and that would involve steel prices being a lot lower than they are.

STEPHEN LONG: So the question is: will the new Asian century mean a golden age for steel, or is the boom already passing by?

I still dont understand why were allowing ourselves to head down this path Australia is more than capable of being self sufficient but the we pay the price to pay a reduced price...

[Falchoon]

I still dont understand why were allowing ourselves to head down this path Australia is more than capable of being self sufficient but the we pay the price to pay a reduced price...

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It's called politics Dags....get Lumpy to explain it to you some time

[Ninka]

Well, thank our government(s) for failing to really prioritise education and value added industries

Instead all we do is to dig up the base material, send it to Asia where ALL the value adding takes place, reducing Australia to a bunch of diggers capable of extracting and shipping dirt, coal or whatever.

Also Australians not supporting locally manufactured product will come back to haunt, as our industries go belly up, and we become 100% dependent on imports.

This will kill our balance of trade, as iron or other raw materials are exported at a fraction of the price we end up paying when re-importing this as finished product.

Go figure

[Damo]

This will kill our balance of trade, as iron or other raw materials are exported at a fraction of the price we end up paying when re-importing this as finished product.

Spot on!

As one example alone, we used to have a very rich ship building industry in this country. Now all we get out of a new ship being built is the iron ore being exported to Japan or Korea to produce the steel for a new ship which then comes back here. The value of that iron ore is generally around the pissy AUD$3m mark for a regular-sized (aframax) tanker It's disgusting

[Falchoon]

Well, thank our government(s) for failing to really prioritise education and value added industries

Instead all we do is to dig up the base material, send it to Asia where ALL the value adding takes place, reducing Australia to a bunch of diggers capable of extracting and shipping dirt, coal or whatever.

Also Australians not supporting locally manufactured product will come back to haunt, as our industries go belly up, and we become 100% dependent on imports.

This will kill our balance of trade, as iron or other raw materials are exported at a fraction of the price we end up paying when re-importing this as finished product.

Go figure

←

I'm no expert (and I suspect most of the people on here aren't either...) but I reckon the cost for Australian workers to process the iron ore into useable material would be several times the cost of getting Asia to do it, even when you include the freight back to Australia. Keeps shipping comapanies in work as it does dock workers and probably creates numerous other jobs.

Are you saying we shouldn't pay Asians for processing the iron ore? What sort of work do you do? I'm sure whatever it is you expect to get paid for it! Are you a mechanic - can you come around and rebuild my motor/gearbox/diff and respray my car for me for nothing?! Didn't think so! We would have far too much to use in Australia anyway, got to do something with it, so sell it to people overseas.

[Damo]

Well, thank our government(s) for failing to really prioritise education and value added industries

Instead all we do is to dig up the base material, send it to Asia where ALL the value adding takes place, reducing Australia to a bunch of diggers capable of extracting and shipping dirt, coal or whatever.

Also Australians not supporting locally manufactured product will come back to haunt, as our industries go belly up, and we become 100% dependent on imports.

This will kill our balance of trade, as iron or other raw materials are exported at a fraction of the price we end up paying when re-importing this as finished product.

Go figure

I'm no expert (and I suspect most of the people on here aren't either...) but I reckon the cost for Australian workers to process the iron ore into useable material would be several times the cost of getting Asia to do it, even when you include the freight back to Australia. Keeps shipping comapanies in work as it does dock workers and probably creates numerous other jobs.

Are you saying we shouldn't pay Asians for processing the iron ore? What sort of work do you do? I'm sure whatever it is you expect to get paid for it! Are you a mechanic - can you come around and rebuild my motor/gearbox/diff and respray my car for me for nothing?! Didn't think so! We would have far too much to use in Australia anyway, got to do something with it, so sell it to people overseas.

I'm certainly not expecting people not to be paid for their work, no matter what country they're in...! And I'm sure Ninka isn't either.

What I'm trying to say is that we used to BUILD ships in Australia. As an example, we'd mine the iron ore in WA, ship it to BHP to be processed into steel plates then send those plates to places like Whyalla or Newcastle and build the ships. They would be Aussie-built ships moving the material from port to port, Aussie's building the vessel and then Aussie's crewing the vessel. All the value-adding was done in Australia.

Now? We mine the ore in Australia and send it off to Asia to be processed and built into a new ship.

Locally built NAVY vessels and such still use BHP Steel. But that's nothing compared to what we used to produce.

[Ninka]

Well, thank our government(s) for failing to really prioritise education and value added industries

Instead all we do is to dig up the base material, send it to Asia where ALL the value adding takes place, reducing Australia to a bunch of diggers capable of extracting and shipping dirt, coal or whatever.

Also Australians not supporting locally manufactured product will come back to haunt, as our industries go belly up, and we become 100% dependent on imports.

This will kill our balance of trade, as iron or other raw materials are exported at a fraction of the price we end up paying when re-importing this as finished product.

Go figure

←

I'm no expert (and I suspect most of the people on here aren't either...) but I reckon the cost for Australian workers to process the iron ore into useable material would be several times the cost of getting Asia to do it, even when you include the freight back to Australia. Keeps shipping comapanies in work as it does dock workers and probably creates numerous other jobs.

Are you saying we shouldn't pay Asians for processing the iron ore? What sort of work do you do? I'm sure whatever it is you expect to get paid for it! Are you a mechanic - can you come around and rebuild my motor/gearbox/diff and respray my car for me for nothing?! Didn't think so! We would have far too much to use in Australia anyway, got to do something with it, so sell it to people overseas.

←

What I am saying is that the balance is not there

Australia is loosing many jobs where value was added in this country, mainly due to the obsessive focus on price that some sectors have, with no regard for the wider consequenses for the employment of Australians.

If there is a product of equal quality which is made in this country, support it by buying it

Of course we should continue exporting raw materials, but the government could support some of the infrastructure projects needed to make processing industries viable, and this is definitely preferable to spending the money on 'cheap' tax cuts for political gain, when these tax cuts contribute to inflation, and just get absorbed when interest rates goes up.

There are so many areas in this country where the government could do some 'country building' but instead continue to pass on significant tax cuts to people earning big $$, and pretty insignificant ones for the average tax payer.

Think how this money could work to give us a world leading education system, allowing Australia to develop value adding industries in areas outside the mining and energy sector, which could include things like medicine, design, research etc.

Saw a story a little while ago, where a potato farmer in Australia receives a few $$ per ton of potatoes he grows for the production of chips, and he now only has one potential customer for the product, McCains, who are screwing him to the point where he will go belly up. Now the staggering thing was, that those same potatoes cost us something like $18,000 per ton when the finished product is sold by various fast food outlets, obviously someone is makiong money somewhere, and it is not the aussie farmer who produces the raw material.

Above story to show how the value adding is going to overseas companies, who supposedly cannot afford to pay another couple of dollars for the potatoes in the first place, sending the farmenr broke

[PepeLePew]

China.....

We have two offices there that sell our stuff (we're a U.S. company primarily).

But we have a large Aussie product range (retail stuff). Among these is product 'X' which we've been moving for some time here as its quite high quality, but in other areas (commercial primarily), and we've recently been moving in retail but slowly. For many years with other product we've produced 'home brand' type stuff..that'll become relevant in a moment.

Anyway, someone in our retail group decided we'd get a variant of product 'X' from China and undercut the crap out of competing products through some major retail outlets. Sold up a storm. And then some competitors do the same thing.

But next thing we hear our biggest customer is opening a buying office in China. So where do you think they might get their own variant of product 'X'?

All in all we move in, make a quick kill which is great, change the market (which is inevitable someone was going to do anyway), but in the end likely damage our own business by diluting it with the cheap Chinese product (the longevity of which is making us work harder on tracking warranty than ever before).

Why dont we all just bend over now and get ready for the knackering knife?

[aussie_geo]

Well as being one from the mining industry I would just like to put a little balance into the statements about adding value to the raw material. Aside from labour one of the biggest costs is power e.g. Aus has the world's largest reserves of bauxite which is processed into Alumina, which again Australia is the world's largest producer of, but the final step turning into Aluminium metal consumes enormous amounts of electricity and the cost of power in Aust is horrendous compared to other countries, so we end up with a few Aluminium Smelters only in places like Portland, Vic where the power is heavily subsidised by the Govt. (read you and me)!

But the good thing is we dont have all those nasty dams (with their cheap hydo power) blocking up the rivers, or many of those horrible coal fired power stations with their smelly gases and ash and heaven forbid, we dont want nuclear power. So I can only conclude all we are doing is reaping the benefits of our own choices.

I shake me head about people who lie down in the middle of the road and then complain when they get run over?

I still have that old bumper sticker.... "Ban Mining - let the bastards freeze in the dark!"

Is an old digger an proud of it

Peter

[Ralph Wiggum]

This will kill our balance of trade, as iron or other raw materials are exported at a fraction of the price we end up paying when re-importing this as finished product.

Spot on!

As one example alone, we used to have a very rich ship building industry in this country. Now all we get out of a new ship being built is the iron ore being exported to Japan or Korea to produce the steel for a new ship which then comes back here. The value of that iron ore is generally around the pissy AUD$3m mark for a regular-sized (aframax) tanker It's disgusting

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BHP Iron Ore...Dig it up send it over to china and Japan..buy it back as toyotas...as Ninka said it's not balanced....BHP tried to Value Add with there Hot Briquette Iron plant in Port Hedland..Unfortunatly it was a raging failure...Why? Because it was an out sourced and untested project made from inferior quality components and shipped in from an Asian country where the methods used to build it where below Australian standards.

I spend my days building and repairing American heavy earth moving equipment thats sold to multinational mining companies who then use it to dig up and send our raw materials over seas...where do the $'s end up? not in WA or Australia We need to get past being a country of primary producers and balance things out...

my 2c