5AA

E&OE TRANSCRIPT
Interview on 5AA Mornings with Leon Byner
01/03/2016

Subject: Future of Arrium

Leon Byner: Let’s talk to Chief Economist at Baillieu Holst, Darryl Gobbett. Darryl, the steel mill Arrium is having a few issues, and we know what they are. What is the view of the Centre of Economic Studies SA as to how we can help turn them around, but also in the same process help other business who are also being challenged by many of the same issues?

You there Darryl?

Darryl Gobbett: Yeah speaking.

Leon Byner: Okay. Well what do we do about- the Government are going to help Arrium, which is fantastic, but what is it they should do?

Darryl Gobbett: Well I think we should be looking at some of the other issues we’ve sort of discussed for quite a while: the cost of electricity in South Australia, which is well higher than the other states, and that’s as a result of both our renewable energy policy, which has pushed energy prices up, but also what we call the gold plating of the wires and the poles out there, we’ve probably got too much capacity in that area; and the other area is water, and steel mills are actually pretty big users of water. And again, water costs in South Australia we all recognise are far too high. I think another issue too is to look at what they [indistinct] is the enterprise bargaining agreement that Arrium, both at the steel mill and the iron ore works, has with its workers. Are the wages and the conditions there consistent more with iron ore prices at $140, $150 a tonne than what they are now, $40 to $50 a tonne, and a Chinese steel industry which now dominates – I think it accounts for over 60 per cent of total world steel production – with their much lower cost and economies of scale? So, you’d sort of say rather than just say yes we’re going to support it and put money in, what are the other things that’s going to be done that would both help the broader industrial sector in South Australia – such as energy, water, and taxes, payroll tax, those types of areas …

Leon Byner: Yeah.

Darryl Gobbett: but also the flexibility and the cost of labour in South Australia.

Leon Byner: Stay on the line, because I have the Federal Industry Minister Chris Pyne. Chris, good morning. I know the Productivity Commission seems to think that anti-dumping is not a problem, what do you say?

Christopher Pyne: I think they’re saying- I think actually what you mean Leon is they’re saying is the anti-dumping laws, which stop dumping, are a barrier to trade.

Leon Byner: Yes.

Christopher Pyne: So they’re kind of implying that dumping is not a problem, as opposed to anti-dumping. Well look, the Productivity Commission report is a report to Government; it’s not a report of the Government. And I think in a purely ideological world the Productivity Commission’s view might stand up, but in a practical world that we live in it’s quite obvious that the rest of the world – Europe, United States, and now here in Australia – is moving to address this issue of Chinese overproduction of steel. And I’m glad that I’m the Industry Minister at this particular time, because while I’m in favour of free trade, I’m also in favour of fair trade.

Leon Byner: Yes.

Christopher Pyne: And if there are laws there to stop dumping, I’m prepared to use them as far as possible without breaching our World Trade Organisation obligations. And I think that’s what any sensible Cabinet Minister would do.

Leon Byner: Yes.

Christopher Pyne: Why would we want to be purer than the driven snow and see our industries go out of business?

Leon Byner: So where do we go with ensuring that Arrium – see, we need to keep steel manufacturing in Australia for strategic reasons for a start, okay? There is a commercial reality, I know, but this is where that argument about strategic purchase or acquisition and commercial activity are two different things. And for us, there’s something in it on both sides isn’t there when it comes to steel?

Christopher Pyne: Well there certainly is Leon, and I think Darryl Gobbett makes some very good points, and many of which need to be picked up by the South Australian Government around things like electricity prices, payroll tax, infrastructure costs, development, et cetera. All of those need to be addressed by the South Australian Government …

Leon Byner: Yeah.

Christopher Pyne… and I think they are wanting to address those. I mean, nobody wants to be paying more for their steel than they need to, but there are good reasons why governments, state and federal, should through their procurement policies support Australian made. Now Bill Shorten’s a bit behind the eight ball, he’s talking as though this isn’t already policy. Of course it’s the states’ and the Federal Government’s policy to buy Australian wherever it’s possible to do so. What the South Australian Government did recently, and I applaud them for doing it, is saying not just that they would have a policy of buying Australian steel, but they would require it be certified as being the same standard, if it’s from overseas, as Australian steel.

At the moment we have some lip service from some of the state and territory governments that they’ll give Australian manufacturers the same go as overseas manufacturers, but they don’t require that the overseas product be certified. Now I think that is something that they should – we should adopt across all the states …

Leon Byner: Well listen there’s an occ health and safety issue here. Look Chris, there’s something I don’t understand. This problem has been around for a long time; it precedes any trade deal we did with China and a lot of other countries, so it’s been there for a while. Why has this been a bit like long winter underwear, where it’s crept up on people, where they should have acted some time ago but didn’t?

Christopher Pyne: Well for the simple reason that the Commonwealth provides the money to the states and territories to build things, whether it’s roads or bridges or railways or whatever. The State Government then have probably – probably – tried in all these circumstances to get the lowest possible price in order for their taxpayer dollar to be driven further. Now I can understand that, but I think the point that you make, and that others make, and that I make is that you know, we might well be – have gone too far in one direction of the pendulum; we need to swing back more towards the centre.

Leon Byner: Alright, are we going to have smart procurement? Because that’s what you’re talking about.

Christopher Pyne: Well that’s the Commonwealth Government’s policy, and I think the South Australian Government’s policy. It’s not the only thing though, I mean Darryl Gobbett made some good points about Arrium; about the workforce, about the iron ore prices, about taxes and development applications and the use of the court. There’s a holistic approach to this, and don’t forget that 75 per cent of Arrium’s product, that their competitors try and bring into Australia are already covered by duty. So it’s not as though Arrium’s competing. In all their products, on an un-level playing field, they already have 75 per cent of their stock covered by duties on their competitors.

Leon Byner: So Chris, what’s going to happen in the short term to ensure that Arrium remains a strong company and that other industries who are big energy users and manufacturers can also have a fair go?

Christopher Pyne: Well the South Australian Government probably needs to do more about power prices. I know that people are very focused on wind and solar power, but the consumer probably doesn’t realise that comes with a price. They’re heavily subsidised by the taxpayer …

Leon Byner: You know the State Government blamed federal policy for this, don’t you?

Christopher Pyne: Well Arrium is exempt from the Renewable Energy Target, so it’s – and the other states don’t have these high energy prices, so the Federal Government’s [indistinct] only applies to South Australia.

Leon Byner: So in the short term, tell the people of our north what’s going to happen.

Christopher Pyne: Well I think we’re making progress. I was very pleased with the Arrium recapitalisation of their debt last – oh, maybe a week before last, with a GOS. I know – I’m talking to them again today at Arrium about what the Government’s doing; I’m waiting for the decisions from the Anti-Dumping Commission around the importation of Asian steel, and I have my inquirer reporting to me on 4 April about the overall market for Asian steel in fact in Australia. So I’m pulling all the levers that are at my disposal; I hope Arrium are doing the same and I’m …

Leon Byner: Alright.

Christopher Pyne: Credit to the State Government, I think they’re doing the same.

Leon Byner: In terms of importing stuff that’s of low quality or dangerous, whose responsibility is that ultimately?

Christopher Pyne: Ultimately the states are responsible for policing Australian standards.

Leon Byner: Alright. Chris Pyne, thank you. That’s the Federal Industry Minister. Darryl Gobbett, good signs?

Darryl Gobbett: I think there’s a good sign there, but there’s … I’d also add another issue, I think there’s a lot of mining development that’s going to be going to be going on in South Australia in coming years, you know, and there’s even talk now about another port on the West Coast, for that to be a common user port. So you’d think – there is demand for steel there, so how can the State Government actually look to bring forward these projects – not so much – some of them would be their own projects, but what are they doing on the development application side to actually ease the path for businesses, so that these things can be built faster and earlier, because South Australia and Australia really has a dismal record in terms of the speed at which we build things, and we often miss opportunity.

And I’d be saying at a time when steel is quite depressed, we’ve got a lot of skilled people looking for work, bringing forward those infrastructure projects, getting them done faster, getting them done with less bureaucratic hassle I think could really be worthwhile for South Australia, and for a business like Arrium which is heavily – you know, a major part of their product is the structural steel and the rail product.

Leon Byner: Darryl Gobbett, thank you. Chief Economist at Baillieu Holst. Well, potentially with our fingers crossed hopefully some good news there.

[ends]