Home' Charter : 1211 Charter Contents December 2011 I Charter 33
is that manufacturing has to contend with the effects of high
commodity prices – and the high Aussie dollar. The rapid rise in
the dollar, pushed along by the resources boom, makes it hard
for manufacturers to compete. Evans says things are likely to stay
“Australia has been given a permanent change in their relative
prices and what I mean by that is some of our commodity export
prices are likely to remain at elevated levels for a considerable
amount of time,” he says.
Which is where the two-speed economy kicks in. “Clearly in
the case of manufacturing and mining, those manufacturers
who rely on a low-value Aussie dollar for their export business
are going to be under permanent stress, ” Evans points out.
“Offsetting that will be permanent prosperity for the mining
Evans says there are many factors that are making it hard for
manufacturing. “One of the disturbing aspects of the rise in the
currency is that the manufacturing sector has not been able to
get its share of the mining boom that you would have expected, ”
“Having said that, another implication of the mining boom is that
the authorities believe the mining boom is going to put upward
pressure on infation. If they have that view, it means they are going
to hold interest rates at a higher level than I believe is necessary.
What that does is put pressure on those domestic parts of the
economy, particularly in the construction sector – both residential
and non-residential – that have been a critical supporter of
“My view is that the government has overestimated the impact
that the mining boom will have on infation. And there’s scope to
ease up on the impact that higher interest rates are having on the
construction cycle. Lower interest rates would certainly help revive
construction, particularly residential construction which some
manufacturers beneft from directly.”
Evans attended the jobs forum in October which highlighted
concerns that local manufacturing frms are not getting a look-in
when it comes to big resources projects.
“The other big message which came out of the jobs summit which is
extremely important is that the long-term slowdown in manufacturing
means that less attention in manufacturing is being given to training,
particularly at the apprentice level,” Evans says.
“What we’re seeing now is this huge shortage of skilled workers
to service the mining boom. And the manufacturers who have
been the major source of skilled training for the sort of skills
the miners require have not been there to provide that this time
around. That’s making it more diffcult for the mining boom to take
off. I think it emphasises the importance of manufacturing as the
training ground for Australia.”
Evans says, in effect, the manufacturing sector is reeling from a
quadruple whammy: the high Aussie dollar; being shut out of big
mining projects; the traditional training cycle being broken; and the
RBA keeping interest rates high.
So how do these tough times compare with what the
manufacturing sector has had to endure in the past? “The
Westpac-ACCI survey started in the 1960s so it’s covered some
pretty brutal times for the Australian economy – the recessions of
the 70s, the two recessions of the 80s and the recession of the
early 90s – all of which were pretty dismal for manufacturing and
most people in the economy,” he says. “I think the difference now
is that manufacturing is shrinking for these structural, permanent,
relative price reasons.
“There’s not a lot we can do about that in terms of the currency,
but what we can do about it is to take some pressure off the
domestic construction sector, to assist those manufacturers that
rightly contribute signifcantly to that sector.”
The other thing we can do, says Evans, is to refocus our
manufacturing efforts. Think niche markets, think Asian markets.
“Clearly, the other opportunity for manufacturing is niche export
markets where it’s not so much a price-driven, low value-added
decision, it’s more to do with high-quality (products) and we are
still doing pretty well with that in certain sectors,” he says. “I think
the other message for manufacturers is to be mindful of the fact
the days of the Aussie dollar in the 70s (that is, 70 US cents to the
Aussie dollar) or the 80s are behind us – in the three- or four-year
outlook in my opinion – and so they need to structure their business
around a fairly high Aussie dollar.
“But we have little doubt that the growth in the Asian region and
the quality of our manufacturers will mean there will be signifcant
opportunities for niche marketing.”
In other words, innovation and exports. Now, back to Port Kembla.
The Number 6 blast furnace was only built in 1996 and was
previously described as the jewel in the crown of BlueScope’s
operation. Such furnaces typically burn 24 hours a day at up to
1200 degrees Celsius, transforming the iron ore, coke and limestone
fux that are fed into them into iron, which is then made into more
In the same way, you could say the heat is defnitely being applied
to Australia’s manufacturing sector and it, too, is being transformed.
Just what it ultimately turns into is the big question everyone is
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