The two major steelmakers in Australia – BlueScope Steel and InfraBuild – plus the Australian Steel Institute (ASI), have claimed the local steel industry is struggling for viability due to exorbitant energy prices and cheap foreign steel imports. Their concerns are supported by new research from the not-for-profit think tank, The Australia Institute. The research reveals that, since liquified natural gas exports started in Queensland ten years ago, there has been a tripling of wholesale east coast gas prices and a doubling of electricity prices. In the steel industry, natural gas is primarily used in `process heating´. This generally means: heating and drying of refractory lining materials used in ironmaking and steelmaking processes; heating of steel prior to hot rolling and coating processes; and heating of semi-finished steel products during heat treatment processes. At present, it is not technically feasible to replace gas with electrical heating. So natural gas will continue to be required for these purposes until alternative fuel gases such as hydrogen are available at an affordable cost and in commercial volumes.

The availability of gas at competitive prices is therefore a critical requirement for a large proportion of the Australian steel value chain.

“When you get your next energy bill, blame the gas industry and your governments for opening the gas export floodgates despite being warned it would drive up energy bills for Australians,” said Mark Ogge, Principal Adviser at The Australia Institute. “Gas exports have meant Australian households and businesses have paid billions of dollars more for energy over the last decade, all of which went to the profits of a handful of predominantly foreign-owned gas corporations,” he added.

In its submission to the federal government´s Gas Market Review, the industry organisation, the Australian Steel Institute, pointed out that gas is not only crucial to many facets of iron and steelmaking; it´s also seen as essential for the transition from blast furnace ironmaking to alternative lower-emission ironmaking technologies. Among its numerous suggestions, the ASI recommended the creation of a legally-enforceable and effective domestic gas reservation. This would provide sufficient volumes to cater for local industry growth and Future Made in Australia commitments. Australia currently exports about 80% of the gas it produces, thus linking the domestic market to the higher prices paid overseas. The volume of exports has also created a supply shortage locally, which in turn has required the importing of gas we had previously exported. “In what world does exporting LNG in massive quantities only to reimport to supply a shorted domestic market make any sense?” asked Mark Vassella, the CEO of BlueScope Steel after delivering the company´s financial results in mid-August. “Without immediate intervention there will be no Future Made in Australia,” he added, referring to the Albanese government´s hopes to rejuvenate manufacturing in Australia. Mr Vassella warned that large parts of Australian manufacturing could be forced to shut down because of high gas prices. BlueScope Steel has called for an immediate halt on the uncontracted export of spot cargoes, as well as the introduction of a domestic gas reservation system.

The CEO of InfraBuild, Francisco Irazusta, has also lent his voice to criticism of high energy prices. In late-August, he told the Australian Financial Review (AFR) that Australian steel manufacturers would “never be able to compete on costs” against cheap imports from Asia whilst ever our own energy prices remained high. That said, Mr Irazusta admitted to the AFR that his main worry at present is the amount of wire mesh and steel rods being dumped into Australia by Asian producers who´ve had their ability to import into the United States stifled by tariffs. “For us, it’s been an indirect impact of having excess capacity arriving to the market at prices that are much more aggressive, that we haven’t seen in the last five, six, seven, eight years,” Irazusta said. “They can no longer make money supplying to the US. So steel needs to find a less resistant path to market and [Australia] is one of those less resistant paths to market,” he added.

InfraBuild is owned by GFG Alliance, the global conglomerate of steel and business enterprises privately owned by Sanjeev Gupta and his family. As GFG Alliance has fought fraud and money laundering allegations over recent years, many of its key companies have fallen into administration or have closed entirely. In his two years at the helm of InfraBuild, Mr Irazusta has often had to fend off rumours of the company´s imminent demise. “It doesn’t matter who owns InfraBuild, it’s a solid business,” he told the AFR. “You have the rumours (of the financial risk of being a subsidiary of GFG Alliance). But we have never had any payment issues. InfraBuild has always been capable of being isolated from that”. Nevertheless, in August, Fitch Ratings warned that InfraBuild’s cash balance was likely to fall below $150 million by the 2027 financial year, which is “a level that may be insufficient to sustain operations in the absence of additional proceeds from asset sales or debt”. Meanwhile, Mr Irazusta confirmed there had been no buyout approaches from private equity firms or other companies for InfraBuild, despite the widely acknowledged financial strain the business faces.

In the AFR interview Mr Irazusta confirmed InfraBuild still has links to the Whyalla Steelworks, including shared human resources and technology services. Before Sanjeev Gupta lost control of Whyalla in February, InfraBuild bought 30% of its steel billet and structural steel output annually from the steelworks. On which point, the Whyalla administrators, KordaMentha, is reported to have said that modernising the plant and developing the nearby iron ore mines could cost a new owner up to $8 billion. This information comes from people present at a briefing given by KordaMentha on August 13. It has been reported that Sebastian Hams, a KordaMentha partner, said a buyer would need to spend between $5 – $8 billion over several years to modernise the steelworks and expand the mines in the South Middleback Ranges to bring the operations up to optimal level. This option would include a magnetite ore concentration plant, a power plant and a top-grade electric arc furnace. BlueScope Steel is part of an international consortium which has expressed interest in buying the steelworks. The billionaire Stokes family has also taken an interest through its listed investment vehicle, SGH Ltd.