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Economics References Committee
01/04/2016
Future of Australia's steel industry

ALBERT, Mr Greg, Chief Executive Officer and Managing Director, Bisalloy Steel Group Limited

MATINCA, Mr Thomas Victor, General Manager, Sales and Strategy, Bisalloy Steel Group Limited

[13:29]

ACTING CHAIR: Welcome. We now have a submission from you, which we accepted at an earlier private meeting. We appreciate you appearing before the committee today. I invite you to make a brief opening statement should you wish to do so.

Mr Matinca : Thank you. We do apologise to the committee for our late submission. We had to put that together in a bit of haste with late notice, but we do apologise, and it is now submitted and accepted. Thank you very much for that.

Bisalloy Steel, for those of you who do not know, is an ASX listed small- to medium-size enterprise with an annual turnover of about $60 million and about 65 employees. We are the only Australian manufacturer of specialty steels. In terms of quenched and tempered steel plate at our Unanderra facility Bisalloy Steel has a capacity there of around 65,000 tonnes, of which we are currently utilising about 50 per cent due to the reduced demand in the Australian industry. However, we do export about 20 per cent of our Australian manufactured Q&T plate to our joint venture partners in Indonesia and Thailand and to other selected countries as I have indicated in our submission.

Bisalloy also has a cooperative joint venture in China that we established in 2011, and that exports to the local Chinese markets and surrounding markets like Mongolia, Kazakhstan and the Philippines. Certainly our focus is around expanding our business globally with manufacturing in different geographies where we can take advantage of exchange rates as they change around the world.

I would like to point out that, in the domestic market, which we are all focusing on today, there are very strong interdependencies between Bisalloy's sustainability and BlueScope, the previous company that presented. We will point out some of those interdependencies later on. I would also like to introduce Greg Albert, who has now been with the company for only about three months. He has come from Sweden, where he worked for a large steel equipment maker. Greg will make some observations he has drawn regarding how steel is treated in a country like Sweden compared to how steel is treated in a country like Australia.

I would point out that, in terms of the terms of reference of this committee about sustainability, strategic significance and other related matters, Bisalloy Steel is the only Australian manufacturer of high-strength steel used in our defence industry assets, having supplied the steel manufactured at our Unanderra facility for the Collins-class submarine and the Bushmaster infantry mobility vehicle. Having the ability to manufacture those steels here to the standards of the Department of Defence and the DSTO is very important in terms of the support and availability of these steels for current defence assets and future defence assets such as the C1000 submarine, the Hawkei light infantry vehicle and the Land 400 projects. In terms of the terms of reference, the strategic significance is really around the ability for the Australian defence industry to have available to it the materials that are required to support those defence assets currently and into the future. I also add that the future sustainability of the Australian manufacturing of Q&T plate for armour-protective plate has significant implications regarding the issues of Australian national security and border protection given those defence assets depend upon those significantly.

I would like to point out that in our domestic market we distribute our steel through three major distributors: OneSteel, which is part of Arrium; BlueScope Distribution, which is part of BlueScope; and Southern Steel Group, which is an independent steel distributor. All of these companies add value to our high-value product in the supply chain in terms of cutting, profiling and forming that steel for fabricated equipment that is made here in Australia. Certainly the value chain is supported right from BlueScope, who makes the vast majority of our greenfeed, through to downstream distributors, fabricators and original equipment makers. High-strength steel is critically important to those businesses and also to Australia in general. An adage that is very much being used at the moment is that the world is getting lighter and stronger, and Bisalloy as a specialty steels manufacturer is the only manufacturer in that high-value specialty steels space that Australia has. Whilst we may be small in terms of our people and turnover, we have a very broad focus on export and a very keen focus on working collaboratively in an innovative sense with organisations like the steel hub, the universities, BlueScope and our end-use customers to deliver what is world renowned as one of the best performing specialty high-strength steels available. We compete favourably with the largest steelmaker in that market segment, SSAB from Sweden.

However, given the environment that we are in and the market dynamics around steel, Bisalloy has been subject to injury from dumped imports. The major highlight today is to present that Bisalloy Steel has taken out a number of antidumping applications against exporter countries—namely, Sweden, Finland and Japan—and have been partly successful with those applications, which has helped us. But we still struggle to find a level playing field that we can compete in domestically because of the current legislation and how it applies to SMEs. As pointed out by the previous presenter, the current legislation does not seem to be as proactive compared to some other nations like the US, where more timely consideration is given.

I will point out two examples of this. The first one is the lesser-duty rule as it currently applies to SMEs in Australia. If there is only one manufacturer of particular goods then the lesser-duty rule is a mandatory imposition. In our case, we do not have a dominant market share—the market share is less than 50 per cent—and the lesser-duty rule reduced the measures imposed on Sweden, which was found to be dumping at 34 per cent, and Finland, which was found to be dumping at 20-plus per cent. It reduced those to 9.6 and 10.8 per cent, respectively. What this meant was that the Australian antidumping legislation, effectively, was subsidising overseas steelmakers to the tune of 20 per cent plus against their own industries.

Second, I point out that, as a previous company has presented, after winning an antidumping case and then having the measures reduced significantly, the next phase is that the exporters will take on circumvention methods. We submitted a circumvention application to the Anti-Dumping Commission. It was accepted but later it was found that the current legislation surrounding anticircumvention made the ADC cease the investigation because any entrant duties are deemed as entrant and not final duties and, if you cannot determine final duties, there is no way of going forward with an anticircumvention case. So whilst it was apparent to us and, we believe, very apparent to the ADC that circumvention was taking place, the legislation really did not allow them to further the case. They had to cease it. Now we have been incurring further injury to our industry as a result of that.

Bisalloy Steel, as a small- to medium-size enterprise, provides a high-value product. We are very innovative. We spend quite a bit of capital on R&D. We work collaboratively with companies to do our R&D and innovation because, as a small company, we only have a certain amount of capital. One of the best ways to innovate is to work with partners, and we do seek partnerships with people in our market segments. But I would like to pass on to Greg for some perspectives that he has gained after seven years in Sweden about how the steel industry is viewed over there and how it is supported by the government of Sweden.

Mr Albert : There are a couple of observations from having spent the last six or seven years working in Sweden and Finland. They obviously have very buoyant global steel and manufacturing industries—and are nice places to live, by the way. I summed them up in a couple of bullet points, and one is that they identified that the world needs steel. They look at how modern societies depend on steel. They are always looking at ways to make lighter, stronger products to deliver superior performance. They are continually developing products for local environmental conditions. They have the ability to develop and customise products for individual demands and they have very good technical expertise, including local experts and technical advisers. In a nutshell, that is really where we play. We take the BlueScope greenfeed and then we enhance it in some way; we make it stronger or lighter—

Senator XENOPHON: You value-add as well.

Mr Albert : Yes, we value-add to it, but I think the difference is that those countries identify that that serves a vital part of the future of the society and also their defence industries.

Another trend that I notice over there is that customers are demanding innovation. Business is getting tougher, and customers are looking for ways to improve their efficiencies, whether it is a structural building, a mechanical piece of equipment, the defence industry or whatever market we supply to. So there is a continual push for specialty steels with higher yield strength, tougher wear characteristics, superior impact resistance and so on. Therefore, they work in a much more collaborative fashion with industry, government and manufacturers in developing expertise which includes R&D, local technical support and innovation.

I think the other difference is their speed of innovation and commercialisation of innovation, which is much quicker than us. That is another one. Another is that they really identify that sustainability is driving this industry, and that is quite an important viewpoint. They look at it from a sustainability viewpoint. Therefore, they look at it and say the increased usage of steel and increased usage of high-strength steel enables reduced emissions in manufacturing and in end-use operations. They educate customers on how to use high-strength steels, how to use and how to benefit the environment and are constantly improve their efficiencies and environmental performance in production with their end users. It is a very collaborative way that they work with the industries and society as a whole.

They see steel as a necessity and they see it as a part of sustainability for the future. A key element in that is innovation. As Tom said, I joined this business only three months ago, but if you look at the success of this business—it is a very good success story—innovation has been the pillar of the reason that it has been so successful. As Tom said, even though we are a small producer of Q&T steel globally, we compete with all of the large global steel manufacturers. They have the benefit of very large scale integrated steel plant operations. We obviously work very closely with BlueScope for that part of it.

Bisalloy is locally designed and manufactured. We do all the R&D in-house. We have collaborative and innovative efforts with companies such as BlueScope and our distributors and a lot of our industry customers, including the Australian government universities. Tom, you could go on from there.

Mr Matinca : Thank you, Greg. I would only add to that, in terms of innovation—

ACTING CHAIR: I would you suggest to you that there may be some senators that might want to ask some penetrating, probing questions.

Mr Matinca : Absolutely, Senator. We will close it off there and take questions from the committee.

Senator KIM CARR: Thank you very much for you submission. Bisalloy has obviously had some success in prosecuting cases against companies—your competitors that have dumped steel here—and that is in the case of Sweden, Finland and Japan?

Mr Matinca : Yes.

Senator KIM CARR: Isn't it a bit unusual that you find that the case has been able to be demonstrated? In the case of Finland, it was a 21 per cent product advantage to the Finns.

Mr Matinca : Correct.

Senator KIM CARR: And Sweden was 34 per cent increase.

Mr Matinca : Correct.

Senator KIM CARR: I find these quite significant numbers. Is it common for these types of cases to be demonstrated in that way?

Mr Matinca : Senator Carr, we are a fairly unique and niche industry and a high value-add industry. Those percentages, because we are high value-add industry, would not be uncommon in our—

Senator KIM CARR: You believe this to be a common problem?

Mr Matinca : Absolutely.

Senator KIM CARR: This is not a unique situation?

Mr Matinca : No.

Senator KIM CARR: Have you had any cases against the Chinese?

Mr Matinca : As a small company, we have limited resources in undertaking anti-dumping applications. We continue to look at the imports and we do see dumping occurring from other countries and other sources. That does not surprise us at all.

Senator KIM CARR: You go on to point out that the operation of the lesser duty rule has mitigated against the propositions which the commission has found in your favour. Can you explain to the committee how that happens?

Mr Matinca : The lesser duty rule, as part of the anti-dumping legislation, says: if you are the only manufacturer of a good in Australia then there is a mandatory requirement that the lesser duty rule be applied. In the case of an SME, I think maybe people overlook the fact that there would be instances in speciality steels where there might be only one manufacturer in Australia. As you said, that mitigated the measures significantly—up to 68 per cent in the case of Sweden and in a similar scale for Finland. The effective outcome there was the legislation subsidising those overseas steelmakers to the tune of 20 per cent plus against the Australian industry—

Senator KIM CARR: Against Australia.

Mr Matinca : Yes, that is correct.

Senator KIM CARR: That is obviously quite a serious proposition you are putting to the committee. You are saying that the case of dumping is much more widespread than just those two examples?

Mr Matinca : Absolutely, and we now, as a matter of our continued sustainability, are contemplating further anti-dumping action as we speak.

Senator KIM CARR: Is that an expensive operation for you?

Mr Matinca : It is expensive in the sense that we have to engage consultants and time. Anti-dumping is not my job, but it has become about 50 per cent of my job. I would say that, for an SME who has not got vast resources, we really have to become more general in our focus.

Senator KIM CARR: Recently, the Senate disallowed some charges that the government was seeking. What was the effect of those measures, as far as your company was concerned?

Mr Matinca : I would have to take that on notice. What charges were they?

Senator KIM CARR: In terms of this antidumping regime. There was a whole series of additional charges the government was seeking to impose on—

Mr Matinca : That might have been on the antidumping review appeals. Those charges were passed yesterday.

Senator KIM CARR: They were disallowed.

Mr Matinca : They were disallowed. We would support that.

Senator KIM CARR: You may wish to take this on notice, because I cannot see it in your submission. You say 'opportunities to improve the antidumping outcomes' but what legislative measures would you like to see?

Mr Matinca : I refer to that on page 2, in regard to the anticircumvention legislation, on section 269Y of the act and subsection 8(6) of the antidumping act. We would like to see that interim measures, after measures have been initiated, are deemed to be final measures when you have a market downturn. In that instance, you have contraction in your market and you have circumvention taking place, but you might have to wait two to three years before interim measures are deemed final measures—and therefore duty payable—before you can mount an antidumping case. In two to three years you could be out of business.

Senator KIM CARR: I want to ask you about climate change policy. There is an ongoing debate in this country and forthcoming policy initiatives in this area. What climate change policies do you want to see that affect the steel industry?

Mr Matinca : Bisalloy, as a consumer of gas—it is a significant component of our energy consumption—is a highly efficient company in its usage of energy in comparison with overseas countries who manufacture Q&T. We have to be highly efficient. We are highly automated. Our yields are very good, as is our quality. We do not use any more energy than we absolutely have to, to convert the greenfeed from BlueScope into Q&T steel plate.

Senator KIM CARR: You are saying your company is a trade exposed energy-intensive industry.

Mr Matinca : We are, to a certain extent, compared to the large integrated mills that produce Q&T around the world.

Senator KIM CARR: What particular measures do you want to see in any climate change policies affecting your company?

Mr Matinca : We would like to see that any measures imposed are imposed on importers of steel who do not have the same measures imposed. As the previous speaker said, if you shut down industries here and they go to inefficient geographies, all you are doing is putting out more carbon but in a different location.

Senator KIM CARR: Do you support the previous submission of 100 per cent shielding?

Mr Matinca : Absolutely.

Senator KIM CARR: What about clean-tech policies to support investment in modernisation?

Mr Matinca : Anything that improves the environmental outcomes, without detrimentally affecting your competitive advantage, would be a good thing.

Senator XENOPHON: If you could go through the mechanics of it all, in terms of who you complain to, what the process is, how long it takes for people to physically get back to you, roughly—without affecting any commercial confidentiality—how much does it cost you to run these? I was told by one small manufacturer that they were quoted a million dollars to run an antidumping case, several years ago, and they only had about 20 employees. I want to get an idea of the burden there is on you. You have already answered a number of those questions that I foreshadowed to the chair. I would appreciate more details, in respect of that. And there is one other issue, which you may want to take on notice. This is a media release that only came out 15 minutes ago from the Minister for Defence. There is a review of the Australian industry involvement for the land for LAND 400 Phase 2 and there is going to be an extension to the request-for-tender-evaluation period. There will be a delay. What impact does that have on you?

Mr Matinca : I will take the first comment, on that point—

Senator XENOPHON: You can provide them on notice.

Mr Matinca : I think we could quite adequately answer those, here and now. The scale, in terms of magnitude of the cost on an SME is in that magnitude that you talked about.

Senator XENOPHON: A million dollars.

Mr Matinca : Yes. It is anywhere from a half-a-million dollars to a million dollars.

Senator KIM CARR: Really?

Mr Matinca : Yes. Absolutely.

Senator LAMBIE: You've got to be kidding. Who profits that money?

ACTING CHAIR: Senator Xenophon is questioning.

Senator LAMBIE: Sorry.

Senator XENOPHON: I am concerned about time constraints, and other senators have questions. I would not mind if you provided me with that response on notice and also—because I do not want to blindside you about this information coming from the Defence department or the minister's office—that there will be a delay in the LAND 400, which is something you were involved in, were you not?

Mr Matinca : Correct. The LAND 400 is one of those projects that we could make a significant contribution to, in terms of supplying the high-strength steel materials. I am happy to take some of those previous items on notice and provide you with some details on that.

Senator XENOPHON: How it affects you if there is a delay in a major project, if that is okay.

Mr Matinca : Yes, okay. We will take that on notice.

Senator XENOPHON: And those other questions I asked you previously.

Mr Matinca : Yes.

Senator LAMBIE: I am a bit devastated on that last point.

ACTING CHAIR: Don't be devastated. Ask your questions.

Senator LAMBIE: I am going to. I was hoping that steel would be heading towards Tasmania to make those LAND 400s. Compared to the rest of the world and what you have to operate on, are you operating on higher environmental standards than other countries making steel products?

Mr Matinca : I will refer you to the bottom of page 5, the last paragraph. Bisalloy has observed that the same standards we apply to maintenance, in terms of ensuring our greenhouse gas emissions, are as low as they can possibly be. Those standards are not applied in countries that we visited and observed to make like goods.

Senator LAMBIE: So that is an extra cost to you. You are not on a fair playing field, there.

Mr Matinca : Correct. As the previous speaker said, in terms of reporting, our greenhouse gas emissions and all the costs of compliance with that is not a cost that our competitors overseas would have, necessarily.

Senator LAMBIE: I want to go back over those antidumping measures. I know that Senator Xenophon asked a few questions for you to put on notice and you said that it is costing you about a million dollars to run a case.

Mr Matinca : I said that the scale—from half to a million—the senator referred to from another SME is not a surprise to us.

Senator LAMBIE: What is the initial cost for the application form, to go in and start the whole process? Does it go to the government first, you put it in and complain or whatever? What is the cost figure we are looking at?

Mr Matinca : There are significant costs involved and I will take that on notice and get back to you on that.

Senator LAMBIE: Sorry. That would be great, if you could just step me through that so I know the prices.

ACTING CHAIR: Gentlemen, I thank you for your submission and your evidence, here, today.