BlueScope blindsides Port Kembla workers

Jobs have been saved at the steelworks — but for how long?

BlueScope's October 26 announcement that the Port Kembla steelworks would be saved from closure came as an obvious relief for the workforce, who had agreed to 500 job losses to save 4500 jobs, together with a three-year pay freeze and foregone bonuses for the next 12 months.

These union concessions are reportedly worth $40 million to BlueScope. The New South Wales government agreed to defer $60 million in payroll tax payments over the next three years, and the company will save a further $100 million through “worker flexibility”.

Taken together, these cost savings provide the $200 million that BlueScope said in August would be necessary to keep the plant open.

But the announcement also came with two others that suggest that not all the cards were on the table during BlueScope's negotiations with the Australian Workers Union (AWU), who cover most workers at Port Kembla.

A first-half profit of $180 million was announced on October 26 — $50 million higher than the $130 million predicted in February by BlueScope chief executive Paul O'Malley.

At the same time, the company announced a $990 million investment in the steel industry – at the North Star steel mill in Ohio, US, not Port Kembla.

North Star, an electric arc furnace steel mill which uses scrap steel rather than iron ore and coking coal, is already half-owned by BlueScope. It has paid BlueScope $1.1 billion in cash dividends over the last 10 years.

O'Malley said on October 26 that the move to full ownership of North Star “delivers on our strategy, which is to deliver cost-competitive steel supply … North Star is the most profitable steel mill in North America; it's cost-competitive and its employees are incredibly productive.”

He went on to say that the Ohio plant is 15 years ahead of Port Kembla in “alignment” between workers and the company “but what we've seen in the last eight weeks is you can make progress very quickly”.

Presumably, this is a reference to the union concessions made under duress.

And what would a complete “alignment” of the Port Kembla steelworks with North Star look like?

According to its website, North Star's 360 workers are completely non-union and the company has never had to contend with collective labour contracts nor work stoppages. As to pay rates, “a profit-sharing plan aligns the interests of employees with the company's performance — approximately 50% of overall compensation is 'at risk', in other words tied to weekly bonuses and annual profit sharing.”

If this is the sort of “progress” O'Malley is looking forward to, he ought to have spelled it out in his negotiations with the AWU.

But to survive even this long, the only other thing that BlueScope can independently do is drastically reduce its operating costs while hoping for much higher steel prices in a global market glutted with steel that is predominantly from China.

Chinese excess steel exports are likely to rise beyond the 100 million tonnes expected by the end of this year. China is shutting down its inefficient steel plants and upgrading its competitive steel mills.

This is the view of BlueScope's major shareholder, Perpetual Investments, which owns 14.2% of BlueScope. Its fund manager, Vince Pezzullo, is reported as saying that the decision to keep Port Kembla open will be an “interim measure”, before eventual closure in the next few years.

Because of its huge dependence on the steelworks, the Wollongong economy would be devastated. But given that it is probably more likely than not, it is time for the unions and the community to come together and draft an alternative industry policy for the region. Time is running out.

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