Chapter 1Introduction and overview

Referral of the inquiry

1.1On 5 September 2022, the following matters were referred to the Senate Rural and Regional Affairs and Transport References Committee (the committee) for inquiry and report by the first sitting week in 2023:

The project known as the Iron Boomerang, with particular reference to:

(a)the employment likely to result from the project during construction and once completed;

(b)the effect on Australia's gross domestic product and balance of payments from this significant change in Australia's productive capacity;

(c)capital, energy and resources required to build and operate the proposed 10 steel plants, 5 at Port Headland, Western Australia and 5 in the Bowen Basin, Queensland;

(d)the feasibility of the proposed clamshell design and electric/diesel propulsion to safely transport iron ore and coal across the 3000 kilometre route;

(e)the environmental benefit of the reduction in bulk ore exports in regard to marine pollution and energy consumption;

(f)any environmental impacts from the proposed alignment;

(g)any impacts of the rail line or steel parks on the Aboriginal community;

(h)the relevance of the Iron Boomerang project to our national security; and

(i)any other related matters.[1]

1.2On 1 December 2022, the Senate granted an extension of time to report by 11May 2023, with a further extension granted on 9 May 2023 to 10 August 2023.[2]

Conduct of the inquiry

1.3The committee advertised the inquiry on its website and invited submissions from relevant stakeholders, including Australian and state government departments and agencies, businesses, industry associations, regional community groups, First Nations organisations and unions. Details regarding the inquiry are available on the committee’s website.

1.4The committee received 24 public submissions and one supplementary submission which are listed in Appendix 1 and published on the inquiry’s website.

1.5The committee held the following public hearings:

24 March 2023, Parliament House, Canberraa half day hearing with the project proponent, local governments, environmental groups and Australian government departments; and

22 June 2023, Parliament House, Canberra – an evening hearing with project advocates and the project proponent.

1.6A list of the witnesses who provided evidence at the public hearing is available at Appendix 2.

Acknowledgments

1.7The committee thanks all contributors to the inquiry, including those individuals and organisations who submitted to the inquiry, gave evidence at the public hearings, and provided responses to questions on notice.

Structure of the report

1.8This report addresses the inquiry’s terms of reference by considering Project Iron Boomerang (PIB), which is a proposal to construct a 3300 kilometre rail line between Newman, Western Australia and Abbot Point, Queensland, and construct five steel plants near each end of the line. The report examines PIB in four chapters:

1.9Chapter 1—An introduction to the inquiry, including its conduct and structure, and an overview of the proposed project, including its history, aims and aspects, as well as broader background context on the iron ore, metallurgical coal and steel industries and transcontinental rail.

1.10Chapter 2—The employment, industrial, economic and environmental aspects of the proposed project, covering project financing, employment prospects, commercial factors affecting iron ore, metallurgical coal and steel, and the environmental impacts of the proposed railway and steel plants, including carbon emissions. Government support being sought by the proponent is also outlined.

1.11Chapter 3—Engagement with and impact on Indigenous communities and local communities along and at the ends of the proposed rail line. This chapter also includes the relevance of steel, including overall supply and domestic production capacity, to Australia’s national security.

1.12Chapter 4—The committee’s conclusions on the inquiry and recommendations.

Relevant parliamentary inquiries

1.13There have been recent parliamentary inquiries into issues of relevance to this inquiry. The Senate Economics References Committee held an inquiry into the future of Australia’s steel industry in the 45th Parliament.[3] The Joint Standing Committee on Trade and Investment Growth held an inquiry into diversifying Australia’s trade and investment profile in the 45th Parliament, for which the Iron Boomerang project proponent provided evidence.[4] In the 46th Parliament, the Senate Rural and Regional Affairs and Transport References Committee held an inquiry into the management of Inland Rail, and the Senate Select Committee on Job Security inquired into the impact of insecure or precarious employment. References to these inquiries appear in this and subsequent chapters.[5]

History of Project Iron Boomerang

1.14PIB was first proposed in 2006 by Mr Shane Condon, founder and managing director of East West Line Parks (EWLP).EWLP, the proponent of PIB, proposes to construct a transcontinental rail line through Western Australia (WA), the Northern Territory (NT) and Queensland (QLD), and an initial five steel plants at either end. The rail line would enable iron ore to be shipped east from where it is mined in the Pilbara region of WA, and metallurgical (coking) coal to be shipped west where it is mined in the Bowen Basin region of QLD, for use in the production of steel. Steel slabs produced at each steel plants, supplied via the rail line with iron ore and coking coal, could then be exported from WA and QLD. Figure 1.1 shows the route proposed by EWLP.

Source: East West Line Parks Limited, Overview.

1.15In ‘Phase 1’ of PIB, EWLP expects to produce 44 million tonnes per annum (mtpa) of ‘first-stage’ steel (steel slabs) from the steel plants, or 4.4 mtpa per plant. The slabs would be exported to markets in the Asia-Pacific and the world, such as to India, which EWLP suggested is ‘expected to consume up to 500‍‍–‍600million tonnes of steel annually within the next 25 years’.[6] EWLP further suggested that this steel could be produced at a price 15 to 20 percent under China’s steel cost benchmark price, which currently produces approximately 55 per cent of the world’s steel supply.[7]

1.16According to EWLP, a total of five phases is planned for PIB, which would aim for a final production volume of 220 mtpa of first-stage steel over 30 years, and a lifespan of 75 years.[8]

1.17In addition to the rail line and steel plants, EWLP proposes the use of ‘modern, high-capacity fuel efficient locomotives’ with ‘closed lid wagons’ that would reduce dust and wing drag, ‘dual-purpose slab steel and container ships’ that would be able to transport containers in addition to steel slabs, and a ‘multi-use fibre optic communication cable’.[9]

1.18EWLP suggested the project would have a range of economic and employment benefits once operational, including the following outcomes:

a 3.4 per cent increase to Australia’s Gross Domestic Product (GDP), improving the balance of payments;

at least $21 billion in annual taxation payments when full capacity is reached;

an increase of Australia’s global steel share from 0.3 per cent to 2.4 per cent;

construction will create 75,000 jobs, and a further 35 000 jobs will be sustained by operation; and

supply chain cost efficiencies and technology transfer benefits.[10]

1.19To proceed with PIB, EWLP is seeking support from several governments, including through the following measures, outlined in its first submission:

the WA, QLD, NT and Commonwealth Governments listing PIB as a project of national priority and significance;[11]

at least $300 million (US$240 million) through issuance of 10-year bonds to support land leases and approvals as part of a bankable feasibility study;

the appointment of a special minister of state to oversee and coordinate PIB at the Commonwealth level;[12]

government assistance for planning, environmental approval and land access arrangements, and support from relevant departments;

a ‘streamlined foreign investment assessment and approval process’, noting requirements under the Foreign Acquisitions and Takeovers Act 1975; and

the provision of high-skilled employment visas to support labour requirements.[13]

1.20Mr Condon later specified that EWLP was seeking the Australian Government to fund 20 per cent of a $370 million feasibility study, or around $74 million.[14]

1.21Mr Condon framed PIB in a global economic and strategic context:

Australia is a lucky country. We're in a very powerful position. We are feeding China's world steel dominance with our 900 million tonnes. The next competitor is South America, Brazil, and it's like falling off a cliff after that. But they're only 30 per cent of our 70 per cent of the supply to China, and Brazil should be keeping their iron ore for the 500 million South Americans, who have quite strong growth economies, when we get over the pandemic. The only country in the world that can sort out the world's steel order book over the next 30 years is Australia. Even more important than the iron ore is the coking coal. We dominate 70 to 80 per cent of the world's seaborne coking coal. There's hardly any left, and we've got the ability to supply it for more than a hundred years. It's very interesting, isn't it?[15]

1.22In evidence at the first public hearing, he again linked PIB to the global challenges of the COVID-19 pandemic and Russia’s invasion of Ukraine:

I have met with the CEOs of the biggest steel companies in the world and they don't understand why we didn't do this 15 years ago. Our reputation as a country will be elevated if we do this. The world needs this. It was short of cement and steel during the COVID crisis. The Ukraine war and COVID have only identified the focus that we need the government to work with us. In a war, you form one government to win the war, otherwise it's open plunder. Iron Boomerang is at that level of importance; it needs to be bipartisan and not partisan.[16]

1.23At the second hearing, Mr Condon reinforced the connection between PIB, Australia’s position as a primary global exporter of iron ore and metallurgical coal, and regional growth during the so-called ‘Asian century’:

No country should ever surrender its steelmaking capacity. It's that important to an economy. So Iron Boomerang has carefully crafted its strategy to accommodate that. But we're already supplying the coking coal and iron ore. The next biggest is Brazil, which doesn't have any coking coal and it has half the iron ore. There's no-one else after those two, for the world, that needs a thousand million tonnes of steel in the next 30 years—in the next 30 years a thousand million tonnes, from 2,000, in the Asian century. That's 2½ Chinas in young demographic terms. That's the future. That's the Asian century.[17]

Iron ore production in Australia

1.24Iron ore has been mined in Australia since the late 1890s. An export ban was imposed prior to the Second World War and lifted in 1960. Around the same time, substantial deposits of iron ore were discovered in the Pilbara region.[18] The growth in the iron ore industry since then has been linked to the economic development of the Asia-Pacific region, including the industrialisation of Japan, the development of Taiwan and South Korea’s steel industries, and most recently, China’s rapid development and requirement for iron ore.[19]

1.25According to the Department of Industry, Science and Resources (DISR), Australia is the world’s largest producer and exporter of iron ore. In the 2021–‍22 financial year, Australia produced 928 million tonnes (mt) and exported 875 mt, or around 94 per cent of what was produced. In the same financial year, it was the largest commodity export by value, representing 21 per cent of all Australian goods and services exports, totalling $134 billion. Figure 1.2 shows the estimated iron ore production in 2021 across the states and territories. Of the four states, nearly all production occurred in WA—an estimated 911 million wet metric tonnes (mwmt) out of 922 mwmt, or around 99 per cent.[20]

Source: DISR, Submission 11, p. 4.

1.26Once functional, PIB would use iron ore for domestic steel production that would otherwise be exported. Regarding the reduction in iron ore exports, EWLP submitted that ‘producing 44 mtpa of steel offshore would otherwise require 66 mtpa of iron ore’ in addition to other resources such as metallurgical coal.[21]

Metallurgical coal production in Australia

1.27Australia also has significant reserves of brown and black coal, and a long history of producing and exporting both thermal coal (for electricity generation) and metallurgical coal (used in steelmaking). Coal was first discovered in Newcastle in 1791, followed by mining and exports commencing in 1799. Discoveries and mining subsequently occurred in QLD, Victoria and WA throughout the 19th century.[22] Australian coal production was centred in New South Wales (NSW) prior to 1950 due to steelworks being located there. As Japan’s steel industry grew in the 1950s, metallurgical coal resources were developed, including in the Bowen Basin in QLD, which today is Australia’s largest metallurgical coal producing region.[23]

1.28Australia is the world’s second largest producer and largest exporter of metallurgical coal. In 2021–22, Australia produced 172 mt of metallurgical coal and exported 162 mt (valued at $64 billion), and it was Australia’s third largest resources and energy export by value in that financial year. Most black coal production takes place in QLD and NSW, and, depending on a given deposit, the mines can produce thermal or metallurgical coal, or a combination of both.[24]Figure 1.3 shows Australian black coal deposits and operating mines in 2020, and Figure 1.4 shows the top importers and exporters of metallurgical coal in 2021.

Source: Geoscience Australia, Australia’s Identified Mineral Resources 2021, p. 22. Note: deposit size is based on total recoverable resources (Economic Demonstrated Resources + Subeconomic Demonstrated Resources + Inferred). For clarity, only major or significant deposits are labelled.

Source: Office of the Chief Economist, DISR, Resources and energy quarterly: December 2022, p. 49.

1.29As with iron ore, export volumes of metallurgical coal would be affected by PIB. EWLP outlined that 40 mtpa of coking (metallurgical) coal would otherwise be required for 44 mtpa of steel made offshore.[25]

Steel production in Australia

1.30Like iron ore and metallurgical coal, steelmaking has a long history in Australia. Iron smelting dates back to 1848 with the establishment of the Fitzroy Iron Works. Steel followed in 1900, when the Lithgow Works produced it for the first time in Australia,[26] and where the first blast furnace was built in 1907.[27] The opening of the BHP Newcastle steelworks in 1915 has been described as the beginning of the ‘modern phase’ of iron and steel smelting;[28] the No. 1 blast furnace at Port Kembla was commissioned in 1928;[29] and the Whyalla blast furnace commenced in 1941.[30] Steel production between Port Kembla and Newcastle rose sharply in the lead up to, and in the first years of, the Second World War.[31]

1.31Steelmaking capacity in Australia has declined since the late 1990s, following BHP’s closure of the Newcastle steelworks in 1999 and BlueScope’s No. 6 blast furnace being turned off at Port Kembla in 2011.[32] At present, Australia has three primary producers of steel which operate five facilities across NSW, SA and VIC. Figure 1.5 shows the current steel production facilities, and Box 1.1 outlines the differences between furnaces used in steel production.

Source: DISR, Submission 11, p. 7.

1.32In addition to the reduction in steelmaking capacity, the remaining steel producers have faced difficult operating conditions over the past decade, although these appear to have moderated since 2017. The then operator of the Whyalla steelworks, Arrium Limited, announced around 600 job losses in January 2015, and 250 in October 2015.[34] Arrium was then placed into voluntary administration in April 2016, following the reporting of a $43 million operating loss for the Whyalla steelworks in February 2016.[35]

1.33Following the impacts of the global financial crisis and increases in global steel supply, BlueScope Steel reported net losses after tax for the 2011 through 2014 financial years,[36] and announced job losses of 1,000 employees in 2011, 170 in 2013 and 500 in 2015,[37] the latter of which was noted in debate on legislation for the NSW Government’s subsequent payroll tax deferral assistance package.[38]

1.34These issues were examined in the Senate Economics References Committee report, Australia’s steel industry: forging ahead, in the 45th Parliament. The report described the steel industry as being in a ‘crisis’—a description echoed by witnesses, including the Chief Executive of the Australian Steel Institute, who said ‘the crisis is a global crisis and it is manifest and very strong in Australia’.[39] The report summarised the value of the steel industry as follows:

The committee notes the important role to be played by governments in defending Australia's steel manufacturing value chain, from steel makers to steel fabricators, recognising that it is a strategic national asset. The steel industry supply chain accounts for tens of thousands of jobs nation-wide, with every dollar of steel production generating an additional gross output of $2.30 across the Australian economy. Further, Australia is a global leader in innovation and cutting-edge products in particular steel sectors. The committee considers that securing the future of the steel industry is essential for the broader Australian economy.[40]

1.35Since 2017, pressure on the steel industry appears to have eased. Arrium was acquired by GFG Alliance in 2017 and the Whyalla steelworks has since been renamed Liberty Primary Steel.[41] In early 2022, GFG Alliance reported a 17percent increase in steel production at Whyalla and signed a $292 million contract to supply rail to the Australian Government’s Inland Rail project.[42]

1.36BlueScope has returned to profitability, reporting $2.81 billion net profit after tax in 2021–22,[43] and is undertaking a feasibility assessment of a reline and upgrade of the No. 6 blast furnace that was mothballed in 2011. The Federal Court found in December 2022 that BlueScope engaged in cartel conduct between September 2013 and June 2014, following action by the Australian Competition and Consumer Commission. Judgment in the case was reserved in April 2023.[44]

1.37Figure 1.6 shows the annual export volumes of iron ore, metallurgical coal and steel from 1989–90 to 2021–22.

Source: Derived from data published by the Office of the Chief Economist, DISR, Resources and energy quarterly: December 2022—historical data, 19 December 2022. Note: iron ore quantities refer to gross weight of all ores and concentrates and includes iron ores, concentrates, lump and pellets. Note: steel is crude steel equivalent. Crude steel is defined as the first solid state of production after melting. Steel amount also includes iron.

Rail construction in Australia

1.38Rail transport has been used in Australia since 1854, when the first line was opened in Melbourne.[45] Progress towards transcontinental rail began towards the beginning of the 20th century, as Western Australia had sought the establishment of a line prior to Federation.[46] The Commonwealth passed the Kalgoorlie to Port August Railway Survey Act 1907 to fund a preliminary survey for a transcontinental railway line between Western Australia and the eastern states, and the Kalgoorlie to Port Augusta Railway Act1911 to fund the construction of the rail line, which was completed in 1917.

1.39In 1997, the Commonwealth and state governments agreed to create the Australian Rail Track Corporation (ARTC) to manage access to the interstate rail network, and, in 2004, the first freight train left from Adelaide to Darwin following completion of the north-south transcontinental rail line.[47] The project’s proponents drew a conceptual link between the Darwin to Alice Springs part of the rail line, suggesting that the ‘protocols and criteria applied’ to it ‘may be considered illustrative of principles that could be applied to PIB.’[48]Figure 1.7 shows the extent of ARTC’s rail network across Australia.

Source: ARTC, Our network, May 2019.

1.40A current rail project comparable to PIB is ARTC’s Inland Rail, which is upgrading and building rail between Melbourne and Brisbane for freight transport of goods. Construction for Inland Rail began in 2018. The committee held an inquiry into Inland Rail in the 46th Parliament, and while the committee was ‘generally supportive’ of the project, it also held a ‘number of fundamental concerns in key areas’.[49] In 2023, the Inland Rail Review commissioned by the Australian Government found that the completion date and final costs could not be accurately estimated and it recommended that the project be transferred to a subsidiary company of ARTC.[50]

Footnotes

[1]Journals of the Senate, No. 8, 5 September 2022, pp. 216–217. The terms of reference refer to Port Hedland, Western Australia as the proposed location for five plants. The project proposes to build the Western Australian steel plants near Newman, Western Australia and export from Port Hedland. The locomotives are proposed to run on a mixture of liquid natural gas and electricity.

[2]Journals of the Senate, No. 27, 1 December 2022, p. 807; Journals of the Senate, No. 46, 9 May 2023, p.1334.

[3]Senate Economics References Committee, Australia’s steel industry: forging ahead, December 2017.

[4]Joint Standing Committee on Trade and Investment Growth, Pivot—Diversifying Australia’s Trade and Investment Profile, February 2021.

[5]Senate Rural and Regional Affairs and Transport References Committee, Inland Rail: derailed from the start, August 2021; Senate Select Committee on Job Security, Fourth interim report: the job insecurity report, February 2022.

[6]East West Line Parks, Submission 19, p. 3.

[7]EWLP, Submission 19, p. 2.

[8]EWLP, Submission 19, pp. 3–4.

[9]EWLP, Submission 19, p. 16.

[10]EWLP, Submission 19, pp. 9–10.

[11]Such infrastructure projects are referred to differently across jurisdictions. For instance, Infrastructure Australia’s Infrastructure Priority List contains unfunded nationally significant proposals. The Queensland Government refers to similar projects as ‘coordinated projects’.

[12]A different appointment than the Special Minister of State appointed to administer matters in the Finance portfolio. That Minister is Senator the Hon Don Farrell as at 19 April 2023.

[13]EWLP, Submission 19, pp. 32–41.

[14]Mr Shane Condon, Managing Director, EWLP, Committee Hansard, 22 June 2023, pp. 18–19.

[15]Mr Condon, EWLP, Joint Standing Committee on Trade and Investment Growth Committee Hansard, 12August 2020, p. 47.

[16]Mr Condon, EWLP, Proof Committee Hansard, 24 March 2023, p. 2.

[17]Mr Condon, EWLP, Proof Committee Hansard, 22 June 2023, p. 20.

[18]National Museum of Australia, Iron ore exports, September 2022 (accessed 30 January 2023).

[19]Department of Industry, Science and Resources, Submission 11, p. 5.

[20]DISR, Submission 11, p. 4.

[21]EWLP, Submission 19, p. 54.

[22]Geoscience Australia, Coal, 2017 (accessed 30 January 2023).

[23]DISR, Submission 11, p. 6.

[24]DISR, Submission 11, p. 5.

[25]EWLP, Submission 1, p. 54.

[26]Essington Lewis, ‘The importance of the iron and steel industry’, Australia’s Economy in its International Context: The Joseph Fisher Lectures, Volume I: 1904-1954, University of Adelaide Press,Adelaide, 2009, p. 589.

[27]Special Reporter, The Lithgow Valley, The Sydney Morning Herald, 29 April 1907 (accessed 30January 2023).

[28]Neville Wills,‘The Growth of the Australian Iron and Steel Industry’, The Geographical Journal, vol.115, no. 4/6, p. 209.

[29]BlueScope Steel, Our history (accessed 30 January 2023).

[30]Mr Lewis, ‘The importance of the iron and steel industry’, p. 593.

[31]Mr Wills, ‘The Growth of the Australian Iron and Steel Industry’, p. 209.

[32]DISR, Submission 11, p. 8.

[33]Descriptions sourced fromWorld Steel Association, The White Book of Steel, 2012 (accessed 30January 2023).

[34]Arrium Limited, Re-Design of Arrium Mining and Results Update, 23 January 2015 (accessed 31January 2013); Mr Tim Binsted and Mr Simon Evans, ‘Arrium to cut 250 jobs at Whyalla steelworks, Alinta cuts coming’, Australian Financial Review, 16 November 2015.

[35]Arrium Limited, 'Appointment of Voluntary Administrators', ASX Release, 7 April 2016; Arrium Limited, 'Arrium Limited 1H FY16 Results', ASX Release, 17 February 2016.

[36]BlueScope Steel, ‘BlueScope Announces Major Restructure to Australian Operations and Reinforces Commitment to Steel Production in Australia', ASX Media Release, 22 August 2011; BlueScope Steel, 'Debt Reduction Targets Exceeded, Australian Business Restructure Completed Globally Well Positioned for Growth’, ASX Media Release, 20 August 2012; BlueScope Steel, 'Significant Turnaround in FY2013', ASX Media Release, 19 August 2013; BlueScope Steel, 'BlueScope FY2014 Result - Earning and Cash Flow Growth', ASX Media Release, 25 August 2014.

[37]BlueScope Steel, ‘BlueScope Announces Major Restructure to Australian Operations and Reinforces Commitment to Steel Production in Australia', ASX Media Release, 22 August 2011; BlueScope Steel, 'Production Changes at BlueScope's Western Port Plant', Media Release, 14 January 2013; BlueScope Steel, ''Game-Changing' Agreement Between BlueScope and Unions', News Release, 8 October 2015.

[38]The Hon. Sophie Cotsis MLC, New South Wales Legislative Council Hansard, 18 November 2015, p.70.

[39]Mr Tony Dixon, Chief Executive, Australian Steel Institute, Senate Economics ReferencesCommittee Hansard, 6 April 2016, p. 7.

[40]Senate Economics References Committee, Australia’s steel industry: forging ahead, 1 December 2017, p. 23.

[41]Liberty News, GFG Alliance completes landmark acquisition of Arrium, 31 August 2017 (accessed 31January 2023); Liberty Steel Group, Liberty Steel Australia, 2023 (accessed 31 January 2023).

[42]Liberty Steel Group, GFG Alliance issues update on restructuring and refinancing progress, 7 March 2022 (accessed 31 January 2023); Australian Rail Track Corporation, ‘Australian steel forging ahead with $292 million rail contract’,Media Release, 2 March 2022 (accessed 31 January 2023).

[43]BlueScope Steel, 'Delivering record annual underlying EBIT of $3.79 billion',ASX Release, 15August2022.

[44]Australian Competition and Consumer Commission v BlueScope Steel Limited (No 5) (2022) FCA 1475.

[45]National Museum of Australia, First steam railway, 21 September 2022 (accessed 2 February 2023).

[46]National Museum of Australia, Trans-Australian Railway, 21 September 2022 (accessed 2 February 2023).

[47]ARTC, Our history, January 2021 (accessed 2 February 2023); Australasia Railway Corporation, History of the Railway(accessed 2 February 2023).

[48]EWLP, Submission 19, p. 45.

[49]Senate Rural and Regional Affairs and Transport References Committee, Inland Rail: derailed from the start, August 2021, p. vii.

[50]Kerry Schott AO, The Delivery of Inland Rail: An Independent Review, January 2023, p. 5.