Jack Colreavy
- Mar 4, 2025
- 4 min read
ABSI - Whyalla Steelworks: A Crisis in Australian Manufacturing
Every Tuesday afternoon we publish a collection of topics and give our expert opinion about the Equity Markets.
Last month, the Australian manufacturing sector was mourning the demise of Whyalla Steelworks. Once hailed as a revival story for Australian steelmaking, Whyalla’s failure under the ownership of British industrialist Sanjeev Gupta’s GFG Alliance has become a cautionary tale of over-leverage, economic mismanagement, and government intervention in a dying sector. ABSI this week covers the crisis in Australian manufacturing.
Whyalla Steelworks, located in the industrial town of Whyalla in South Australia, has been a cornerstone of Australian steel production for decades. Originally part of BHP, the plant was spun off as OneSteel in 2000, rebranded as Arrium in 2012, and subsequently fell into administration in 2016. Gupta acquired the plant in 2017, promising a new era of modernisation and investment. The news was a godsend for the local town, with the steelworks and adjacent iron ore mine employing ~1,000 people directly. However, the promised transformation under Gupta never materialised, and the facility continued to struggle with inefficiencies, outdated equipment, and financial instability until the South Australian government had enough and sent in the administrators for the 2nd time in 9 years.
Source: GFG Alliance
The downfall of Whyalla was a combination of financial mismanagement, structural inefficiencies, and broader economic factors, with pending US tariffs on steel imports not helping the financial outlook. In the previous 7 months, Whyalla lost ~A$319 million with debt continuing to mount,t causing a crisis of confidence in the company. The lack of investment in the facility was the ultimate undoing, with production operating at just 25% of capacity due to ongoing issues with a blast furnace well past its use-by date. A key domino for the lack of investment was the collapse of major Gupta financier Greensil Capital in 2021.
Aside from the job losses, the collapse of Whyalla Steelworks has left creditors owed ~A$1.35 billion. The single largest creditor is Gupta’s GFG Alliance, which claims to be owed ~A$500 million. ASX-listed mining contractor NRW Holdings is another major creditor with shares slumping 9.3% in trading on Monday as it reported to be owed $113.3m. Finally, the state and federal governments are also key creditors, owed millions in unpaid taxes and royalties. That is outside the billions set to be invested by the government to save the business.
Source: Steel Supply LP
On that note, the Albanese government, in conjunction with the South Australian government, has announced an A$2.4 billion rescue package to save the steelworks from complete collapse and find a new owner. A big chunk of the funds will be used for long overdue upgrades which includes replacing the coal-fired furnace with modern gas-powered electric arc technology. Funds will also be required to keep operations running during the sale process, which is expected to take up to 2 years.
However, with a federal election looming in May, the timing of this bailout raises questions. Is this a genuine industrial policy or a politically motivated move to secure votes in key battleground states?
Critics argue that the government’s intervention is merely a band-aid solution without a clear long-term strategy for making Whyalla competitive. Funds should be allocated to advanced manufacturing industries/processes rather than simple products that are dominated by cheap, subsidised Chinese products. The Albanese government is also creating a habit of bailing out seemingly uncompetitive companies on the eve of an election with promises to save Rex Airlines from collapse on the budget. With the Star Entertainment Group teetering on the brink of collapse, are they next to receive a bailout?
The collapse of Whyalla Steelworks is a stark reminder of the fragility of Australia’s manufacturing sector. While government intervention has provided a temporary lifeline, real questions remain about not just the plant’s long-term viability but Australian manufacturing in general. In my opinion, the government needs to stop applying band-aid solutions and look to enact meaningful business reforms in Australia to boost productivity and encourage investment into new industries. Taking a look at company and income taxes is a good start.
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