17/02/2011 - 00:00

Steel fabricators need reality check

17/02/2011 - 00:00

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As the debate over local content on big projects heats up, we need to ask where WA’s competitive edge is and what the government can contribute.

A DECADE ago, Western Australia was home to about 10 major steel fabrication workshops. Since then, companies such as Transfield, ABB, United Group and Thiess have closed their workshops, leaving the market to local firms like AGC-Ausgroup, Fremantle Steel, Pacific Industrial and Park Engineers.

Now even those firms are battling to win work, with most of their workshops operating well below capacity, despite the surge in construction activity on major resources projects.

Does this mean the market is failing, and government needs to step in? Or does it mean the market is sending us a loud and clear message? The objective evidence points to the latter.

The reality is that local steel fabricators struggle to compete with giant Asian yards, which can supply large volumes of structural steel at much lower prices.

This is clearly bad news for people in the industry, who had been anticipating a full order book.

Premier Colin Barnett’s April 2009 prediction that “a project like Gorgon will fill up every workshop in Western Australia for years” only served to lift expectations.

The premier is now struggling to deal with a political problem that is partly of his own making.

“Local content is a real issue,” he said last week after meeting petroleum and mining industry leaders.

“Despite investment, steel fabricators are not getting the work I expected.”

Mr Barnett wasn’t the only person expecting local firms to win more work; even the project developers thought that would be the case.

The Gorgon project, for instance, designed a special package of work that suited the capabilities of local steel fabricators.

Several local businesses, including United Group and AGC, even formed a joint venture to boost their capability.

But when the final bids came in, the local firms were not even remotely competitive.

It’s not just companies such as Woodside and Chevron that are sending work overseas.

The state government has done the same. Back in 2007, the Labor government awarded a $62 million contract for a floating dock at the Australian Marine Complex at Henderson.

This was part of a major infrastructure upgrade designed to hep local firms be more competitive.

How ironic, then, that the supplier awarded the contract (local company Strategic Marine) fabricated the floating dock at its yard in Vietnam.

Defending the decision, then planning minister Alannah MacTiernan made the same point that big resources companies make now – the costs quoted by local suppliers weren’t even in the ballpark.

The reasons local firms struggle include the small scale of their workshops, their low throughput, high labour costs and the exchange rate.

Despite this, the outlook is not all gloomy for the local firms. While they have struggled during the construction phase of big projects, there will be a long pipeline of repair and maintenance work over coming decades.

Their ability to undertake this work is dependent on having a supply of skilled and experienced workers, many who come through their apprenticeship programs.

That goal may be at risk if throughput in the fabrication yards keeps on falling and it becomes unviable to train apprentices.

This is an example of where the self-interest of the project developers and the steel fabricators coincides with the goals of the government and the unions.

At a time of chronic skilled labour shortages, all parties need to support investment in skills and training.

UnionsWA secretary Simone McGurk emphasised last week that one of the prime targets should be the Rockingham region, which is located near the Kwinana industrial strip yet suffers high youth unemployment.

However, even the most positive advocate of training would acknowledge the relatively small pool of prospective ‘graduates’.

That is why the federal government needs to continue liberalising skilled migration, so that Australian industry can get the workers it needs.

Another smart investment is increased spending on R&D, either through universities and Tafe colleges or in tandem with business.

That will help local industry indentify high-value, niche opportunities where they can compete.

Continued funding for the Industry Capability Network, which works to link local suppliers with opportunities on big projects, is another sensible move.

• Next week: How to get more engineering work.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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