Carbon tax, currency threaten Australian steelmakers

Carbon tax, currency threaten Australian steelmakers. Weighed down by the strong Australian dollar, overseas competition and a proposed tax on carbon emissions, Australian steelmaking in Australia aces an uncertain future. The closure of Hills Holdings Ltd.'s pipe and tube manufacturing facilities, expected by the end of September, is the latest sign that the country's 31.7 billion Australian dollar (US$33.5 billion) steelmaking industry is in trouble. The company says it no longer is economically viable to make steel pipes and tubes in Australia and instead plans to import the products, which are used to transport oil, gas and water. "We've seen a growing trend toward importing finished pipe coming out of China, Korea," Graham Twartz, Hills's managing director, said in an interview. He said the strong Australian dollar and weak domestic construction market have added to the company's woes. Australian heavy industry is struggling with a national currency that is trading near 30-year highs, which reduces the cost of imports. Benefiting from lower-cost labor and abundant demand, India and China have ramped up steelmaking, their combined output more than quadrupling over the last decade as production from traditional steelmakers like the U.K. has fallen. Steel production in Australia recovered last year to 7.3 million metric tons after falling 33% the previous year from its 10-year peak, according to the World Steel Association. The industry here traces its roots back to the turn of the last century, when steelworks grew to supply mines. Among the early investors was Broken Hill Proprietary Company Ltd., which commissioned its first steelmaking plant at the Port of Newcastle in 1915. The company now trades as BHP Billiton and is the world's largest miner by output. Australian steelmakers also must contend with a plan to tax 1,000 of the largest carbon producers starting in July of next year and introduce an emissions-trading system three to five years later that could punish the energy-intensive industry. Steelmakers are concerned about the plan. The government says it will compensate the industries most affected. "I don't think I've seen a tougher environment than the one steelmakers are currently operating in," said James Bruce, portfolio manager at leading Australian funds-management firm Perpetual Ltd. Mr. Bruce has covered BlueScope and OneSteel Ltd. for about nine years. "The pressures the industry is under are enormous and that's putting a significant strain on the businesses. That's before you even consider any implications from the carbon tax," he said.