Homelife Crisis No Comment

I know this is a running blog. But most of my running has been around Whyalla. And when we left in December, I knew then that a little piece of my heart would forever be Whyalla.

Whyalla - from behind the house

I went back to Whyalla at the weekend, not knowing what last Thursday would hold. My plan was simply to make a road trip back with the Little Red Car. Oh, and Twin 1 and Twin 2. As it turned out, it felt like an auspicious moment to return to my Australian home town.

For those of you that have managed to avoid the news for the last week, Whyalla is the 3rd largest city in South Australia, home to some 22,000 people. Had we lived there just a little bit longer, I’d be able to tell you with confidence that we knew 50% of that population (or it would feel that way). It’s that kind of place. For all of that, it’s the place where 80% of my Aussie friends live. And work.

And that work is provided by Arrium. Arrium Mining. OneSteel Whyalla Steelworks. Both part of the same business. Both directly responsible for employing 1,600 local people. And another 1,400 contractors. 10% of the local workforce (according to a press article, but regional statistics say 22%).

And mining and steelmaking are not the best businesses to be in right now.

There is overcapacity of steel in the world market, and that is putting pressure on prices. And means that producers overseas are eying the Australian market as a place to sell their excess. But that is just trade. If Australia has more products than buyers, then our businesses will look to sell overseas, too.

And as steel production rates drop, so the need for raw materials has dropped. Which means the iron ore that once had a value similar to diamonds (OK, not quite, but still way more than you’d think a chunk of iron could ever be worth) has crashed down to something more realistic.

Back in the day, when iron ore was the new diamonds, some clever clogses at Arrium realised that the little mines out the back of Whyalla could be their very own money printing press. And they set to work capitalising on it. They reconfigured the Steelworks to use the expensive magnetite ore so that it freed up the cheaper hematite, so that could be flogged on the open market at the exorbitant prices it retailed for. Huge profits. Genius!!

Of course, the quantity of ore available in Whyalla’s backyard was minuscule compared to the quantities being mined by the BHP and Rio Tinto, but we could piggy back a small portion of the profits they made.

And this was all fine. Because there was money to be made and plenty to go round.

Arrium faced some difficulties. The big miners were always in need of people to dig their iron-diamonds, so they could lure anyone with mining skills with the offer of a fatter pay cheque. So, to avoid the haemorrhaging, Arrium had to bump up its wages. After all, the local population is a finite resource. And 12 year olds can’t be put to work these days.

And because the mining business was bumping up its wages, the steelworks were forced to follow suit to keep hold of its own skilled people.

Grace Collier wrote a piece in the Australian bemoaning the astronomical pay across Whyalla here as though she’d hit on the undiscovered horcrux at the root of the Arrium’s troubles. Nope. It was well understood. But not something that could be addressed whilst mining was booming.

Other factors were at play.

The other problem facing Whyalla is that irrespective of the cost of iron ore on the open market, the Steelworks takes on the actual cost of digging it out of the ground. Which is more than the market cost. And is configured to use the expensive stuff to boot.

The other Arrium steel manufacturing plants use scrap, not iron, as their feedstock. They melt steel to make steel. Scrap prices have crashed along with all the other commodities. So they are enjoying the effect of the depressed economy and are profitable right now.

Judith Sloan, also writing for the Australian here from her ivory tower in Melbourne, has written Whyalla off as uneconomic.

But seriously! That is to completely misunderstand the economics of regional towns in Australia.

3,000 people employed across the Arrium sites. In 2011, there were 5,777 “family households”. Not every household is an Arrium household. But a lot are.

And those that aren’t are often small businesses serving those spending their Arrium dollars. The teachers at the schools are preparing the Arrium kids for Arrium futures. The doctors and nurses are monitoring the health of Arrium employees and the hospital is patching them up when it fails. The cafes caffeinate the Arrium employees through their working days. And the restaurants feed the Arrium appetite. And the coastal towns round the Eyre Peninsular? They accommodate the Arrium holidaymakers getting a bit of R&R.

The banks stand to lose a lot of money on the debt Arrium owes them. And that’s not counting the losses they stand to make on the defaulted mortgages that would occur across the town, if the steelworks fails. (The property investment vultures are already circling, waiting for kill).

And don’t think taxpayers won’t be affected, even if the Government doesn’t step in. Because that’s a lot of families that will suddenly stop being self-supporting. And if the livelihood of the third biggest city in South Australia disappears, who is going to pay taxes to support the rest of the state?

Regional towns are a tapestry. Everyone and everything is interwoven. You can’t pull one thread without the whole piece starting to fray. And as Arrium is such a major part of the picture, it holds a lot of threads together.

Whyalla is like its own version of Monopoly and without Arrium as the banker, there is no game.

But Whyalla’s harsh climate has bred a resilient people. They bind together in tough times. And they were acutely aware of the troubles facing them. So they were well along the track of addressing the problems. Restructuring started months ago.

Now that the economy is depressed, maybe there is finally an opportunity to untangle the mess that is the EBA and its extortionate penalty rates. I hope people will see that a lesser wage is better than no wage.

I know Whyalla. I know the Steelworks. I know the people.

Don’t bet against them.

Because this is one game that will go on.

And even if it comes to a penalty shoot-out, Whyalla will come out winning.

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