Three separate but related stories that add up to a little reality. BlueScope Steel this morning reported a 66% profit plunge as the double-edged nature of the resource boom took its toll – but the company still has the wherewithal to spend $320 million to buy 19.9% of Smorgon Steel to prevent its takeover by OneSteel.
Meanwhile Industry Minister Ian Macfarlane can tell Laurie Oakes the government won’t be giving away any of its shrinking and increasingly tokenistic industry protectionism as part of any free trade agreement with China.
And another local car parts manufacturer is teetering on the brink of collapse with Global shutting down its furnace today.
Two of the three stories are part of the on-going reality of the China boom and its offspring, the resources boom. BlueScope should be doing well out of the construction boom, but rising costs are eating its lunch while international steel production nibbles away at its dinner. It’s another chapter in the profit reporting season story we’ve been highlighting – costs running faster than pricing.
Global (formerly Ajax Fasteners) is just the latest in a string of Australian parts manufacturers finding it too hard to compete with foreign factories. The cumulative impact is threatening a car parts industry that had blossomed in the 1990s. If local parts suppliers can’t compete, at some point it will make no sense to assemble cars here either.
With the reality of global competition as the backdrop, it was pretty funny to see Ian Macfarlane on Sunday promising to stick to the current plan for clothing and vehicle tariffs, not giving in for any FTA with China. As if it matters. And as if China is really prepared to give away anything to us for an FTA when it already has what it wants here.
What might make a difference in time for Australia is China’s success. Beijing’s interest rate hikes on Friday are part of the price of that success. In time, a stronger currency and higher costs will restore some balance to the manufacturing playing field, but to still be around by then, Australian companies will have to rely on greater creativity and nimbleness.
And how is that done? Only by investing in people at all levels… just what Australia has not been doing for the past quarter century as the government spend on education as a percentage of GDP has fallen by a third.