COMMENTARY: Things are not looking good for steelmaker and miner Arrium, especially for its South Australian operations. As well as the obvious social and economic issues, the fate of the Whyalla Steelworks and associated mining operations has the potential to have wider impacts on the rail industry, Mark Carter outlines.
Faced with a heavy debt burden and changing global market conditions, just a couple of months ago Arrium thought it had gained a possible temporary reprieve for its financial problems with a debt lifeline being negotiated with a US private equity interest – or ‘vulture fund’ as one commentator chose to call them.
However this deal has now been rejected by Arrium’s creditors, including the big banks, leaving the board with little option other than to place the business in voluntary administration in attempt to trade its way out of trouble.
In the current climate of low iron ore prices and Chinese steel dumping it is hard to see how this can end in anything but tears – and it also has ramifications for the wider rail industry.
The Whyalla Steelworks and mining operations employ around 3000 people, both direct employees and contractors.
Its operations at Whyalla also generate considerable rail activity. Genesee & Wyoming Australia (GWA) has been sub contracted to provide all internal shunting operations at the steelworks since 1999 on both narrow and standard gauge.
GWA also hauls around 9mtpa of haematite iron ore on narrow gauge tracks from the mines in the nearby Middleback Ranges for export through the recently upgraded port facilities at Whyalla. (The feedstock for Whyalla’s steelmaking comes from magnetite ores fed from the mines via a slurry pipeline.)
Pacific National operates a daily train carrying steel products on the 80km long branch line to Port Augusta, which then feed into PN’s Steelink network of interstate freight trains – the only regular traffic on the ARTC managed branch.
Symptomatic of the problems facing Arrium, and the criticism it has received over some of its investments, is the failed Southern Iron project which has seen a fleet of virtually new locomotives and wagons lying idle at Whyalla for over a year now.
These assets were used to transport around 60,000 tonnes of iron ore a week from Wirrida in the north of South Australia to Whyalla for export, but the traffic lasted less than eighteen months when the collapse in the world price for iron ore and relatively high cost of production caused it to cease.
Arrium had invested heavily in purchasing Western Plains Group’s Peculiar Knob iron ore assets on the back of high ore prices, also in upgrading its port facilities and the new rail operation.
The new traffic flow had even partially influenced ARTC to invest in signalling improvements between Port Pirie and Tarcoola to increase capacity on that corridor. While this section now has a long overdue safeworking upgrade, the revenue to pay for it has evaporated.
This has not stopped ARTC in throwing a small lifeline to the Whyalla Steelworks with PM Malcolm Turnbull and ARTC CEO, John Fullerton, jointly announcing recently that ARTC will fast track a major upgrade to the east-west corridor, replacing 1200 kilometres of rail between Adelaide and Tarcoola at an estimated value of $80m ARTC will partner with Arrium to deliver the upgrade, substantially boosting demand for steel production at the Whyalla facility.
Media reports at the weekend have suggested that Arrium’s top five customers Lend Lease, John Holland, Metricon, BHP and ARTC, as well as federal and state governments will continue placing advance orders for structural steel up to 24 months ahead of construction start dates to boost efforts to keep Whyalla alive.
Although this has not been in time to stop the New South Wales government improving 6,500 tonnes of steel rail from Spain for use on its the Sydney Metro Northwest project.
Turning again to the impact on rail operators, while the loss of the steel traffic ex Whyalla will be a hit for Pacific National it would be one it could cope with, but as we are seeing with similar events with Queensland Nickel, troubled times are not just limited to Whyalla.
Any cessation of business at Whyalla will be another hit to GWA, already reeling from the loss of the Wirrida traffic and other mineral flows in the Northern territory. The company’s US owners must be wondering what they have let themselves in for when things were looking so rosy only two years ago and the Australian operations were the jewel in its crown.
While the outlook for Whyalla is not great, some commentators have suggested that with the its debt burden removed, Arrium’s individual components could all be sold off as going concerns to new owners
Tough times unfortunately that are not just confined to South Australia, and are not confined juts to Australia. For those who cast a wider net for their news similar events are evolving in the UK where the recent closure of one of the country’s largest steelworks has been followed up with the UK’s largest steelmaker, India’s Tata corporation putting all its UK assets up for sale.
Tough times did I say? Crazy times the more you think about it.