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

GREGORY, Mr Oscar, Director, ARC Research Hub for Australian Steel Manufacturing, University of Wollongong

ISRAEL, Mr Damien, Chief Finance Officer, University of Wollongong

ACTING CHAIR: Welcome. Do you have any comments to make on the capacity in which you appear?

Mr Israel : As well as being Chief Finance Officer at the University of Wollongong, I am representing the senior executive of the university.

ACTING CHAIR: You have lodged submission No. 9 with the committee. Would you like to make any amendments or additions to that submission?

Mr Gregory : Yes, I would. Wherever you see the word 'bacteria', please replace it with the word 'fungi'. It is not about bacteria; it is about preventing fungal growth on steel.

Senator KIM CARR: So how did that get through?

Mr Gregory : Good question. I did not write it.

ACTING CHAIR: At the tea break, Senator Carr and I were only just talking about why it was not in fact 'fungi'.

Senator KIM CARR: We picked that up immediately!

ACTING CHAIR: We were going to quiz you on that, but we are glad you clarified it!

Mr Gregory : We would be pretty good if we could actually deal with bacteria.

ACTING CHAIR: That was our problem too. Anyway, I am glad we have sorted that out. Do you have an opening statement?

Mr Israel : To introduce the guts of our submission, if you like, the university has just referenced the fact that it has had a longstanding relationship with BlueScope. In fact, it grew out of its capacity as a training college back in the fifties to the university it is today. Our submission reflects the close collaboration that we have had with BlueScope over many years and more recently through our Sustainable Buildings Research Centre and through the work of our steel hub, as directed by my colleague here, Oscar Gregory.

Probably the only other point to amplify in the submission is that, beyond the specific matters of steel manufacturing, the university is engaged in and trying to promote a range of other economic development activities for this region, given the pressure on the local economy. We are looking to see how we can assist in diversifying that economy for our graduates and for more knowledge based and professional services types of operations to support the traditional manufacturing and mining activities.

Mr Gregory : First, I should declare that I was previously a general manager at BlueScope. I reported to Mark Vassella. I left the company two years ago.

ACTING CHAIR: You left it in good shape?

Mr Gregory : I thought it was in pretty good shape, but Wayne Phillips would say there were too many bosses.

Senator XENOPHON: You left on good terms, in other words?

Mr Gregory : I left on very good terms.

Senator KIM CARR: Were you one of the bosses that left then?

Mr Gregory : I am one of those, yes. In actual fact, John Nowlan and I decided one of us had to go, and, me being the older of the two, I put my hand up and that is how it went.

ACTING CHAIR: You just bought a new fishing rod and you wanted to use it!

Mr Gregory : Golf clubs, actually. And I needed to assist my son, who also has a vineyard. You know how hard that work is.

I have written some notes here, which I will go through. Manufacturing has been in trouble for a long time in Australia, as you know. Recently there have been signs of activity, but it is from a very low base. I have a history—more history than Damien, of course—between the university and the company. Since 1951, the University of Wollongong has been a part of the symbol of manufacturing that Port Kembla and Wollongong have portrayed since the 1930s, when the Hoskins family first came here in 1928.

The university has a top engineering faculty, particularly but not only in mining, minerals, welding and mechanical engineering. The workshops and boardrooms of Australia have apprenticed people through this university or universities that BHP and BlueScope have supported over this time, and that includes me. Over the past 20 years BlueScope and BHP have funded more than $1 million of research at this university each year in engineering alone. In 2013 BlueScope agreed to continue that funding for a further five years as part of its application to the Australian Research Council's Industrial Transformation Research Program, ITRP. This program enabled BlueScope and Arrium to leverage their research investment from $1 million per annum to $2.5 million per annum of cash and the equivalent amount of in-kind contribution. So that is a $25 million program that is running over five years. This has occurred at a time when the future of Port Kembla steelworks has been under considerable pressure to be competitive against imports.

In their successful application to the ARC, BlueScope are effectively speeding up the outsourcing of more of their research to the universities. Given BlueScope have considerable intellectual property invested in their products, they are somewhat nervous about this change. My role as a director of the Steel Research Hub is to ensure there are tight governance controls in place to meet all the party's needs and to facilitate ways in which research outcomes are achieved to the satisfaction of industry.

BlueScope is an innovative company, which is why I am making this pitch. That is an innovative company is evidenced by the fact that it is one of the most branded steel companies in the world. It is not a commodity business. I am not aware of any steel company other than BlueScope that guarantees its product. Today, Colorbond is guaranteed for 35 years.

CHAIR: 36 years.

Senator XENOPHON: That's right.

Mr Gregory : I was afraid you were going to say that. I was just testing you out! How does it do this? It is because it invests in R&D and innovation. The Steel Research Hub is only part of BlueScope's investment in research; it still has considerable in-house capability. The Steel Research Hub itself has 13 participants—six universities and seven industry players. The newest and potentially most interesting of those are Cox Architects and the building company Stockland. Research being undertaken within the hub is over 70 per cent product development orientated and a further 20 per cent is to improve the competitiveness of the steel-making business, including waste management and energy management. A small six per cent is an overarching program that looks at the management of innovation in the Australian steel industry.

Cox and Stockland are participating in a project called Steel-Intensive, Mid-Rise Residential Building Designs. BlueScope has been very effective in the single-dwelling residential market. Pre-engineered buildings and sheds are also a strength of theirs. But how many buildings greater than three storeys do you actually see steel involved? Designing a prototype that is competitive with concrete and timber is the aim of this project. This project has the potential to open up tremendous opportunities for the downstream manufacturers, a number of which I notice have made submissions to this inquiry.

Some of you have been to the Sustainable Buildings Research Centre, and I am sure they made you aware of BlueScope's involvement. This centre is a participating member of the Steel Research Hub and will be leading the research in the mid-rise building project. It is not going to be solely about steel. It is also about a living and working experience as demonstrated at the research centre. All up, there are 21 projects, 24 PhDs, 16 post-docs and 31 chief and partner investigators involved. That is 71 directly involved and in the order of another 40 indirectly involved.

The steel research hub has great potential. Its aim is to be the centrepiece for collaborative steel research in Australia. It surprises me how many research institutions in Australia carry out steel research. This year we aim to bring together and share their work with industry, including large and small-to-medium enterprises. The New South Wales Department of Industry has agreed to support the funding of the event here in the University of Wollongong. It is a rare event to have such a gathering in Australia. I cannot find a conference that has occurred in steel in Australia in the last 20 years. This is one extra benefit of having a steel research hub.

I submit to you that this is an industry that is strategically important to Australia. It is innovative. It has reinvented itself with some very hard-nosed decisions within its organisation, and it has been in the district for 88 years. It is a leader in coatings and is recognised worldwide for its product development and also for its safety leadership within the World Steel Association. It just needs a break from the unlevel field it operates in Australia. That is my submission.

ACTING CHAIR: Thank you very much, Mr Gregory. Given your previous position, your understanding and your helicopter view of the industry as you would have right now, and given your independence and your freedom to speak openly about the issues in the steel industry, what do you think is the single biggest threat to the steel industry in Australia that the government can address in the short term?

Mr Gregory : Certainly, the competitive forces that exist internationally and the state of the steel industry internationally are causing most of the problems, as I would see it, for the Australian steel industry. This was evidenced again only a week and a half ago by the Americans actually wanting to put a 20 per cent duty on BlueScope Steel. So, not only is it having to actually operate with imports that are way below the actual cost of production of the countries from which most of them are being imported, but where it does have to export—and it does export approximately 600,000 tonnes of its operation—it is also at risk of duty in those other countries. So I think that is its biggest issue. We can argue—

ACTING CHAIR: What can government do about that?

Mr Gregory : The government is doing things with antidumping. It is doing that. I suppose it is the speed at which it does that that is what has concerned the company for a long time. This issue has been going on for quite a lot of years, quite a long time, and it is just taking an awful long time to actually get there. I suppose you could also ask: where is the procurement side, particularly on the government side, indicating that it is important to them that the steel industry actually continues operating? As we know, and you heard it from the unions a moment ago, having a 10 per cent price decrease put to you makes it very difficult for any council member within Australia to accept another price. Even here in this town—build a stadium out of overseas steel when it is—

Senator XENOPHON: Who did that project, though? Who was responsible for it?

Unidentified speaker: The state government.

ACTING CHAIR: Which state government?

Unidentified speaker: New South Wales.

Mr Gregory : I will just say the New South Wales state government.

ACTING CHAIR: Mr Israel, do you have a comment to make on my question to Mr Gregory? I give you the same opportunity, given that you have now had that on notice. The poor bugger had no notice.

Mr Israel : I do not feel that I have the expertise to answer that, to be frank. That is a big question.

ACTING CHAIR: Okay. Senator Carr.

Senator KIM CARR: Mr Gregory, can I just get some further information about the steel research hub? You said it was an ARC centre?

Mr Gregory : It is an Australian Research Council funded program.

Senator KIM CARR: How much is the funding?

Mr Gregory : From the ARC, it is $5 million over five years.

Senator KIM CARR: That is not a huge amount of money, is it?

Mr Gregory : That is all you could apply for.

Senator KIM CARR: When was that granted?

Mr Gregory : It was granted in December 2013 and it takes nearly 12 months to actually get the program up and running.

Senator KIM CARR: What is the total funding? If it is $5 million from the ARC, presumably the other participants—

Mr Gregory : The requirement under the program is that industry must pay 75 per cent, in cash, of the equivalent amount. So it is $5 million from the ARC and $5 million, minimum, of which effectively $3.7 million must be in cash.

Senator KIM CARR: How many participants did you say they were?

Mr Gregory : Thirteen. There is a Lysaght and a BlueScope there, so you could probably say 12, because they are one and the same.

Senator KIM CARR: It sounds like a very interesting project. How many universities are involved?

Mr Gregory : There are six. There is the University of Queensland, the University of Newcastle, RMIT, Swinburne, the University of Wollongong and Monash University.

Senator KIM CARR: Mr Israel, for the benefit of Hansard, can you explain what the Sustainable Buildings Research Centre is and what it does?

Mr Israel : It was established through the Education Investment Fund established by previous federal governments. It is a facility that essentially is focused on the research into retrofitting—

Senator KIM CARR: It was an EIF project, was it?

Mr Israel : It was, yes.

Senator KIM CARR: How much was that?

Mr Israel : Thirty-five million dollars, from memory—of that order. Its primary focus is looking at technologies and innovations around how to minimise energy outputs and energy footprints, if you like, for building infrastructure and particularly how to look at retrofitting such technologies to aged building stock to come up with improved energy ratings and the like. Beyond that, it is part of the very close collaboration now with BlueScope in terms of various product research, innovation and development.

Senator KIM CARR: How does your work affect the future of the steel industry?

Mr Israel : I think the key focus there, as Oscar pointed out, is that the university provides a research and development capability for the steelworks, in terms of looking at potential new products, new technologies, that can be applied to previous product development by BlueScope and potentially putting new product in the market that may give them an opportunity and an edge relative to their competitors.

Senator KIM CARR: I ask you those questions for the Hansard record because I want to acknowledge the hospitality of the university in providing access for me and Sharon Bird yesterday and for the committee this morning. We heard from BlueScope in this morning's briefing. Unfortunately we were not able to record that for the Hansard, so I just wanted it to be clear: how important do you regard this research and development work in terms of sustaining the industry? Either of you could answer.

Mr Gregory : For BlueScope, as I said in my submission, it is not a commodity business. Unfortunately for somebody like Arrium, their products are not as differentiated, so it is a difficult thing for them to do. We are doing research work for Arrium but not actually in the product area. A steel company has to differentiate itself enough to be able to survive. To try and just sell hot rolled coil or things like that—it is a far too vicious environment internationally for that.

BlueScope is very capable of differentiating itself. It operates in many parts of the world and sells these products into that world. So it is assisting not only the steel company here, and therefore Port Kembla Steelworks; it is assisting BlueScope operating in other parts of the world as well. Its coating technology is extremely advanced, and the work that we are doing now is high-end work dealing in nanoparticle-type research. So if you want to stay in the game you have got to give the customer something that actually differentiates them from others—and that is what it is working on.

Senator KIM CARR: Mr Israel, do you want to add anything?

Mr Israel : No, that is fine, thank you, Senator.

Senator RHIANNON: If BlueScope was not here, what would it mean for the university and for this research? Like last year, when the crisis was on, if they had actually folded and the blast furnace was shut down and they were not operating anymore? What would it mean?

Mr Gregory : If you look at the engineering in particular—but it is not only engineering—in its mineral processing side it does a lot of work with BHP out of Newcastle, and a lot of work for BlueScope in that area. When I started metallurgy at the University of Wollongong, there were 72 students in the first year. Today that is down to about 12. I am not sure of the number. I think you could obliterate the lot if you do that. Materials engineering would become pretty risky here at the University of Wollongong or would be picked up by other universities elsewhere, admittedly. But certainly there are parts of engineering that would just fade away. But that is transition too. I accept that. But it would be very devastating for them.

Then you have got the school of informatics, mathematics, that does a lot of work. It has had a very good record in the finance area and accounting, so there would be fewer graduates coming through; they would be relying on external students for that.

Senator RHIANNON: Any other flow-ons?

Mr Gregory : To the community itself?

Senator RHIANNON: Or to the university and to the community.

Mr Israel : I think the research collaboration we have described and the industry contributions that have been made to that historically have been substantial, so they would be no longer there. In terms of the research outputs of the university, no doubt there would be a substantial reduction in those.

Mr Gregory : You could assume that even though there is $1 million invested in this research in the steel hub, BlueScope has invested in this Sustainable Buildings Research Centre and it does invest in other areas as well.

Senator RHIANNON: So that would all end. If there is no BlueScope that is not there.

Mr Gregory : Yes, that would all end.

Senator RHIANNON: Cumulatively, how much would be lost in terms of the current BlueScope contributions—say on an annual basis—to research?

Mr Gregory : Remember that BlueScope also puts a lot of students, cadets, et cetera, through the university. Do you want to add all those up as well?

Senator RHIANNON: Even a ballpark figure?

Mr Gregory : A ballpark figure, if you actually go up through all the years, I do not have a number but I would not be surprised if there are more than 50, maybe 80, students who are actually going through the university in one field or another—

Senator RHIANNON: And in terms of the money that they put in for research, can you put a figure on that?

Mr Gregory : In terms of research it would be close to $2 million a year.

Senator RHIANNON: If BlueScope pulled out of steel manufacturing and just did the more high-end work, how would that play out? Would you be giving a similar answer or would it be business as usual?

Mr Gregory : No, I would not. It would still be investing in research. As I said, 20 per cent of the research is actually in the end that you are talking about closing, the front—

Senator RHIANNON: The 20 per cent, so you—

Mr Gregory : Twenty per cent of the research is in what you would call the hot end, the iron and steel making.

Senator RHIANNON: So you would lose approximately 20 per cent if they took that course of action.

Mr Gregory : Yes, that is right.

Senator RHIANNON: What would be the wider impact on the community, outside the university?

Mr Gregory : It is about having a strong engineering school and a strong STEM facility in this part of the world. It is going to deplete that until it builds it up another way.

Senator RHIANNON: Have the cost-cutting measures imposed by BlueScope had an impact on its work with the University of Wollongong in terms of what we have seen so far?

Mr Gregory : They have certainly had an impact on the way research is done. The scrutiny from BlueScope is quite intense. I am fortunate in that I know the people at BlueScope quite well and so my facilitating role, whilst it can be tense at times—it would be quite difficult if it was an academic in the role—in the current circumstances, because of those tensions that are there, the scrutiny over costs is large and the scrutiny over—

Senator RHIANNON: From BlueScope to the university?

Mr Gregory : From BlueScope to the university—and the scrutiny on outcomes of research is very intense.

Senator RHIANNON: You gave that answer to my question: 'what has changed with the cost-cutting?'. Has it got more intense? Is that what you mean?

Mr Gregory : Much more intense.

Senator RHIANNON: What does intense mean—BlueScope wanting more outcomes?

Mr Gregory : Intense means that—typically when you do research at a university there is some freedom for the researcher to, let us say, play with their own ideas on the subject matter. What you are seeing at the moment is almost contract research: 'This is what I want you to do, and I don't want you wasting time on that or that or that.' It is becoming quite intense that way.

Senator RHIANNON: That doesn't sound very healthy.

Mr Gregory : It is my role to find—

Senator RHIANNON: To try and manage that.

Mr Gregory : To facilitate a good outcome for it. I can understand where they are coming from, but I think—

Senator RHIANNON: So you are saying it is more a commercial relationship, that the university is like—

Mr Gregory : It is at risk of becoming that. It is not entirely that all the research is like that, but some of it is becoming like that.

Senator RHIANNON: When you said it has become more intense since the cost cutting, it sounds like that is a driver.

Mr Gregory : It is a reflection of the pressure that the people from BlueScope are receiving to ensure that they meet these deadlines and requirements on cost cutting and other supports to the business.

Senator RHIANNON: In terms of how you have explained what is happening with research at the university, is that driving a change in culture elsewhere in the university?

Mr Gregory : Yes. I straddle both of these and I can see both points of view. In many ways, I am supportive of BlueScope's position, and so it is probably good for the researchers at the university to get a little bit of the stick to make them more responsive. Everything you hear in the external environment is: 'What are the outcomes for industry? What are the returns for industry that your research is giving?' So it is a sense of where things are going in research overall, anyway, which is where it is being pushed. I do not think it is that bad.

Senator XENOPHON: I have one question, which relates to the work that you are doing. I have to say that I was incredibly impressed with what I saw this morning. I have asked Craig McLauchlan to provide some details to the committee if he can—just a short summary of some of the projects and what their potential is. I think it is a good thing for the committee to consider.

As part of your evaluation do you quantify the impact and potential impact of what you do in terms of the R&D and the synergy you have with industry? I do not mind if you put it on notice. I think that is what some of the bean counters will always ask, but it seems pretty self-evident that there are significant impacts you can have. How can you broadly quantify that without tying yourself up in red tape, spending your time quantifying that rather than innovating?

Mr Gregory : It is one of the big issues at the moment. Right now, the ARC themselves have a set of measures, what they call KPIs, that are very much academically oriented. They are starting to change. What is the return on investment of this research? What is it that we actually have in tangible returns that you can estimate here?

Senator XENOPHON: Is that the old question or the new question?

Mr Gregory : Certainly the new question. I could send you the KPIs, as they are called, that are required from the ARC.

Senator KIM CARR: Can I interrupt? I do not think you are quite getting what Senator Xenophon is seeking. I suspect you know that. Are you able to tell us if you have done any assessment of the commercial implications of what you are doing or any assessment in terms of how much value there is to the industry from the work you are doing?

Mr Gregory : It is better to say 'No' on that. I have done some very rough work on that. Does research do it or does industry do that?

Senator KIM CARR: If you know the answers to the problems, it is not called research. That is an old adage in universities. You are saying that there is $5 million directly from government and 75 per cent has to come from the other players. Not all of those are companies. You must be able to give us a rough idea of how much the companies are putting in. What do they get out of it?

Mr Gregory : BlueScope puts in $5 million. They get out of it a prototype design for a building up to 10 storeys high, including a BIM model that is cost-effective with the concrete and timber industries made out of cold-formed steel.

Senator KIM CARR: Isn't it also the problem when you are making this estimate about the commercial impact that you do not know? It will be the case that the value of such innovations may take a generation to actually be realised. So it is not possible, on one level, to actually get a commercial impact straight away.

Mr Gregory : You can say that is true, but if you look at the work that is being done on the overarching project it is saying far too often that the research is technology driven and not market driven. In other words, in the relationship with industry, who has gone out and said, 'This is going to get through the supply chain'? It is all well and good having a product, but it's got to get through a lot of steps before you as a consumer are actually going to accept it. There is a lot of work that BlueScope has done over the years that has never gotten past the first stage of that. It has hit the marketers and they have said, 'I can't convince a builder to accept this design.' What that project is showing is that you need to be out in the market and you need to be talking to all these parts in the supply chain to understand whether they are prepared to accept it. From that you can do some evaluation as to whether it will get picked up. Sure, it is going to be rough about how much it might replace other materials, et cetera. But you can eventually do some cost assessment or value assessment on it.

Senator KIM CARR: It is not particularly accurate. If we take, for instance, the Colourbond material, it is now 50 years old. How much was actually spent?

Senator XENOPHON: It is only just out of warranty!

Senator KIM CARR: In terms of the development of that technology, how much R&D went into it? You would not be able to assess at the time at which that money was going to be spent that it was going to be as successful as it has been.

Senator XENOPHON: You may be able to assess the potential.

Senator KIM CARR: But that is where we get into the area of speculation. This is the problem with these questions for the ARC. How do you actually demonstrate impact? Or aren't we just pulling figures out of the air for the benefit of annual reports?

ACTING CHAIR: This chat is going very well.

Senator KIM CARR: Thanks very much.

Senator XENOPHON: You are very diplomatic, Chair.

Mr Gregory : This is his many years in this role.

ACTING CHAIR: This chat has been going very well, but this whole work-to-rule thing has got me going here today.

Senator KIM CARR: That is right, and I have been requiring that.

ACTING CHAIR: I am sort of catching that, which would put me in a lot of trouble.

Senator XENOPHON: On notice—I do not want you to answer this now—could you consider what you think would be reasonable KPIs or what you think would be fair in the context of the potential commercialisation or potential benefit of your research. Again, I know it is a difficult issue because the CSIRO, when they fatefully invented wi-fi, it was a result of or tangential to doing their radio astronomy division research.

Senator KIM CARR: Their investigation of black holes.

Mr Gregory : And some research is about retention of the market, trying to put a number on that.

Senator KIM CARR: I see you have not been at the university very long.

Mr Gregory : Maybe that is a good thing though, Senator!

ACTING CHAIR: Mr Gregory, it has been fun; Mr Israel, you have ducked a bit I notice, but that is okay, that is reasonable.

Senator KIM CARR: Thank you very much.

Mr Gregory : It is a pleasure.

ACTING CHAIR: We thank you for your testimony here today and for coming along. We appreciate your contribution.