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Global Financial Crisis And The Blue Scope Steel Australia And New Zealand

2813 words - 12 pages

BlueScope Steel Australia and New Zealand (BANZ) is a manufacturing company that produces a range of flat steel products for the Australian and New Zealand domestic market. BANZ was formed in July of 2011 which saw the amalgamation of company sections; Australia and New Zealand Steel Making Business (ANZSMB), LYSAGHT and Distribution Business. This amalgamation was followed by a major organisational restructure which ultimately led to the closing down of Number 6 Blast Furnace and resulted in around 800 job losses at the Port Kembla works and 200 job losses at the Western Port works in Victoria. The aim of this project is to outline the rationale for the restructure and to provide a ...view middle of the document...

Over a 9 month period prices plummeted from around $1000USD per tonne to around $400USD per tonne. Coupled with this diminished steel price a number of other nations, such as China and India, were begging to increase their own steel production. In China alone, steel production increased from 23.7 million tonnes in 1977 to 683 million tonnes in 2011. Also, local steel consumption in China has increased to 400kg per person per annum. As of 2011 the Port Kembla works (the largest steel producer in Australia) was producing around 5.2 million tonnes and local consumption was around 350kg per person per annum.

This increasing demand for steel in Asia highlights the second major challenge that presented itself to the industry, the enormous increase in the cost of raw materials. The production of steel requires to primary materials; iron ore and coke. In 2005-2011 Australia experienced its ‘mining boom’ due to a strong demand from Asian nations for high quality coal. This high demand had a two-fold effect on steel production. The increased demand drove the price of coal, the primary material in coke, extremely high and also greatly increased the price of the Australia dollar. Along with this, the world experienced the ‘global iron ore price revolution’ which saw the price of iron ore rise from $20USD/tonne in 2000 to $140USD/tonne in 2010. Showing a massive 700% increase in as little as 10 years. Another major factor which also led to complications with raw materials was the change in pricing process. Until late 2010 all iron ore and coal suppliers utilised an annual pricing scheme. This set raw materials prices for the length of the year. When this year was finished a new price was negotiated and set. This allowed steel producers set prices for long periods and added an element of greater stability to the company and thus the share prices. However, as of late 2010 some major raw material providers, such as Vale (one of the three largest iron ore producers in the world), began to set prices quarterly. This approach allows raw material producers to negotiate more frequently with customers and thus, gives them greater opportunities to increase the cost of raw materials. This ‘global iron ore price revolution’ was experienced worldwide and all steel producers suffered to varying degrees. Nevertheless, for an already struggling business, this only intensified pressure.

The final challenge present to the company was the high value of the Australian dollar (AUD). It has already been discussed above one of the major influences of this, that being the mining boom, but it was not detailed how this adversely affected an already suffering business. A high AUD decreases the international competitiveness of any exported product from Australia. For BlueScope this meant that in a market which they were already struggling to compete in, due to the excess of cheap Asian steel, they would now be placed at a further disadvantage due to an increased cost being placed...

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