What remained of Australia’s struggling steel export industry has effectively been killed off by BlueScope Steel’s closure of one of only three of the nation’s blast furnaces as part of an overhaul to cope with a surging local currency.

The restructuring to focus on domestic steelmaking operations was driven by the punishing impact of the booming Australian dollar, which last month hit its highest point in nearly three decades at $1.10, together with high raw material costs and soft steel prices, BlueScope said.

Monday’s news added fire to a smouldering debate in Australia about the impact of the strong currency on manufacturing, agricultural, tourism and retail as companies, including travel publisher Lonely Planet and US food maker Heinz, cut back in Australia and shift operations to lower-cost countries.

BlueScope, Australia’s biggest producer, said it was axing 1,000 jobs after reporting a full-year net loss of A$1.05bn (US$1.1bn), including a A$487m loss from export activities and A$922m of asset writedowns. It said every 1-cent appreciation in the Australian dollar robbed the group of about A$7m in earnings.

The Australian dollar was trading at $1.04 against the US dollar on Monday, compared to just over $0.81 in June last year.

Recognising that the industry was struggling, the Australian government on Monday said it would channel A$100m from its steel transformation plan – part of a range of industry assistance measures linked to the planned introduction of a carbon tax next year – to BlueScope to help the group and its sacked workers.

Julia Gillard, prime minister, acknowledged that the high Australian dollar had heaped pressure on trade-exposed sectors of the economy, while the mining boom had forced changes on the country as the global economy shifted from the west to east, but said that in spite of that rebalancing, Australian manufacturers would continue to operate. “We will be a country that manufactures goods,” she said.

The retrenchments at BlueScope come days after smaller rival OneSteel announced it would cut 400 jobs. Merrill Lynch last week estimated at least 7,000 people across Australia, have lost their jobs since June.

Paul O’Malley, BlueScope chief executive, said the group could no longer sustain its export business. “The economic conditions for export steelmaking from Australia appear unlikely to become favourable in the foreseeable future,” he said.

Exports accounted for roughly half of BlueScope’s annual steel production of 5.2m tonnes.

Paul Howes, the Australian Workers Union’s national secretary, said the country’s manufacturing sector was in crisis due to the strong Australian dollar.

He said imports of Chinese steel were artificially cheaper because Beijing had not allowed its currency to appreciate and urged Canberra to join the US in putting pressure on China, calling the steel industry “the backbone of Australian manufacturing.”

“Cracking down on China’s currency manipulation should be right at the top of our foreign policy agenda,” Mr Howes said. “Estimates suggest China is undervaluing the renminbi by up to 40 per cent, which just drives export industries and jobs to China at the expense of Australian industry.”

The list of companies whose bottom lines have been hit by the strong Australian dollar has continued to lengthen. Treasury Wine Estates, the wine company spun out of Foster’s earlier this year, said on Monday that the currency’s strength slashed about A$30m from its maiden full-year earnings profits. On Friday, shares in Billabong fell as much as 25 per cent after the surfwear and sport clothing maker said the dollar and a soft retail market had contributed to an 18 per cent drop in net profits.

An annual survey from DHL, the transport group, this month found that more than 80 per cent of Australian exporters had been hurt by the high Australian dollar. “The exchange rate mainly impacted on competitiveness, prices, sales and profit but less so on investment, output and employment,” it said, adding that manufacturing and agriculture were the worst-hit sectors.

However, it noted that the high dollar made imported raw materials and capital goods cheaper and helped promote Australian company investment offshore.

BlueScope for one is expanding its international business, including its China-based operations. It aims to lift output in China by about a third in the coming years, and is building a new facility in Xi’an to capitalise on growth in western China.

OneSteel, Australia’s second-largest steelmaker by market value, plans to expand iron ore sales to 9m-10m tonnes and on Monday agreed to buy iron ore assets from WPG Resources for A$346m to boost exports.

Get alerts on Currency wars when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Comments have not been enabled for this article.

Follow the topics in this article