Steel supply has two halves – Recycled Scrap Steel ARC furnaces and New Steel from Blast furnaces.
When the world economy is booming the Blast furnaces should make a killing and the ARC furnaces nothing due to the high cost of scrap.The other way around when the economy tanks and scrap is cheap.
The excessive profits made in the booms should cover the years each is in the doldrums – maybe losing a little money, looking at ways to cut costs.
Depending on how the economy is one is in the money and the other is not and maybe losing some,that is a fact.
In the down years these ARC furnace staff numbers and restrictive work practices took a hammering.
ARI's ARC furnaces are also amongst the most efficient converters of scrap to steel based on their electricity use in global charts.
The boom steel price years and the cheap IO feed didn't see Whyalla Blast furnace making the dosh for the bad years (NOW) it should have been.They have in essence already been spent in the Whyalla district over the years,in wages,poor contracts,or just doing things less efficiently or in a more costly manner.
Arrium blast furnace has for years also been subsidised by the pellet stream.
That should have been set up as a seperate profit centre/business and charged its IO supply at market rates to the blast furnace,less the cost of train freight and infrastructure to provide an incentive/cost saving to use it.
Even a 10-20% discount would have kept everyone honestly focused-this is what Chinese controlled listed miners in AU do.
Whyalla steel mill would have years ago then addressed its internal cost issues.
There would have been no ifs and buts as there are now,by everyone involved.
Work practices and contracts and plant long ago would have been adjusted for greater productivity in a constructive manner by all concerned out of necessity.
That way the pellet stream years ago would have had the money for recent upgrades to fix quality and supply greater volumes,making its costs lower and probably exported pellets at a profit years ago,instead of waiting for funds to be allocated by the board for upgrades that have also increased production and reduced costs.
Currently IO prices would also have also put pressure on the pellet stream to reduce costs as its income would be lower and so would have the blast furnaces costs dropped.This has only recently happened.
The port and shipping should also have been a seperate cost centre.
Maybe then better moorings closer to Whyalla may have been deemed economic for reducing trans-shipment costs.
Maybe dredging to enable closer Cape Access.
Trans-shipment versus longer term value of dredging for capes to the harbour,especially at debt costs of 5-7%?
IO price rising means a couple of things for ARI – not all good.
It is still not enough to justify investment or maintenace of the IO business if it lasts.
It starts to alter the Steel market dynamics -Meaning SCRAP will now start to COST MORE and ARI's ARC furnaces will now start making LESS not more profit.
It all comes down to IF it swings back towards the Blast Furnace,will ever make any money and at what point.
The more efficient it is (the lower the point it starts to make money) the greater chance it has of staying in business and getting reline investment in a downturn.
If it can't be done then logically it should go and ARI should pick up raw steel cheaper elsewhere,just to protect the rest of its steel industry investment,so it can compete and grow its profitable downstream businesses.
Much has been made of the need for a reline.Whyalla has been running above and beyond its expected reline life by all accounts for some time,so is a good example of making do while you can.
That can last for only so long and that decision is getting closer by all accounts.
The Blast Furnace accummulated profits it should have made in the good years to reinvest to do so are just NOT THERE.Long ago spent one way or another around Whyalla.
An even greater incentive to ensure it is operating better than just beyond break even when it should be making a killing and so ensure it will be providing well paying secure lifetime jobs well into the future.
That may be simply the Union accepting a three man job is now a two man one and maybe simply acceptance by both parties informally that although breaks may have been defined and rigidly enforced in most areas in the past meaning extra staff , may need to change to more efficient “Needs Must-or needs of the Job” and that may mean missing a break or being called out in the middle of lunch for breakdowns and employees being compensated by having a longer break,when all is quiet,as it is in many a heavy industrial environment.
20 years ago,all my manager had to do was see my feet up on the desk to know his plant was cruising and he had nothing to worry about.
Or unions sorting out their demarcation issues in a sensible manner.
OR ARI also getting smarter and addressing the need to redeploy staff within its businesses cheaply.
How many steel mill operators could be retrained as Bully drivers,stuck in a Bully paid for with the redundacy sum that could have been paid to that worker and then sent mining at sites replacing contractors currently making a good margin above operational costs.
At least one I would guess,keeping him employed,his family happy,mortgage paid and making ARI a desired employer who you know looks after its employees as much as it can once you are one.
DYOR + DYODD Long ago I thought any sane constructive management would have sorted so many ARI issues out and dealt with so much potential outstanding to make money they would left BSL in their dust. AG must have thought the same to have been so bullish especially on steel.
Instead of ARI management in some areas being driven to drive out costs and increase turnover,That board was distracted with looking forward ignoring it had as legacy businesses that should have been making money or exited,instead of tolerating dripping losses.
Waiting -------------Waiting
ARI Price at posting:
2.3¢ Sentiment: None Disclosure: Held
(20min delay)