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by John Cadogan

If you’ve been dead from the neck up these past six months, or if your IQ is below the room temperature in degrees C, you might not be aware of the recent controversy over Australian resources. It’s the sort of thing that topples prime ministers, catalyses elections and gets some of Australia’s richest mining magnates offside (not to mention thousands of their employees).

Everyone else (that’s those of you who are alive beyond four foot six, with IQs above 21 degrees) might think Australia is – at best – a minor player in the global automotive game. An insignificant (in the greater scheme of things) number of Commodores, Falcons, Camrys (totaling 223,354 in 2009) and – soon – Cruzes produced in penny-ante production lines here is hardly the kind of thing we Aussies can crow about when you compare the staggering volumes of vehicles produced in Europe, China, South Korea and the USA.

But once you scratch the surface you see that the global car industry and our Australian resources are practically joined at the hip. The fact is, Australia is a fundamentally major player in global car manufacturing – and we would continue to be that even if Ford, Holden and Toyota mothballed their factories here tomorrow.

Without our precious Australian resources – principally iron ore and coal, but also copper, bauxite and sundry precursors to the finished products you see in the showroom, the global automotive scene would be very, very different. We are a big player – there is no doubt.

TV reporter David Eccleston and I, both wearing our Today Tonight hats, recently followed the epic six-week journey of Australian iron ore from its source in WA’s Pilbara region to the Hyundai Steel mill in south Korea and back – as complete cars – via the world’s largest car factory in Ulsan, South Korea.

The scale of the whole operation is, frankly, jaw-droppingly, gob-smackingly massive.

You can watch the story, which aired earlier this month, here:

Iron ore is mined by Rio Tinto at the Pilbara’s Tom Price mine in two 12-hour shifts, 24/7/365. A staggering 100,000 tonnes of it a day is blasted, crushed dumped onto trains and hauled by rail to the coast, flung into ships and transported for two weeks in 200,000-tonne job lots to South Korea, and other industrially dense destinations.

So we hopped on a bomber and stood on the port at Dangjin on South Korea’s west coast to watch the massive bulk cargo carrier Hyundai Pioneer dock and decant its 200,000-tonne rust-coloured load. The rule of thumb here is simple: one tonne of iron ore equals enough steel to make one car. And 13 ships carrying 200,000 tonnes arrive from Australia every year.

We’re told Hyundai is the only car manufacturer on earth with its own steel mill. Ford apparently had one in the distant past, during the long-past heyday of American automotive manufacturing, but no more. This one in South Korea is so new, clean and environmentally sensitive it’s perched right next to a fishing village, without impinging on the fisherfolk’s economic viability.

If Hyundai Steel’s mill is one thing besides clean and efficient it is highly dependent on Australia: “We need 13.5 million tonnes of iron ore to produce eight million tonnes of steel,” says Phil Koo, who oversees planning at the steel mill. “We get over eight million tonnes of that iron ore from Australia.” We’re having this conversation while standing inside one of six space-age geodesic iron ore containment domes. These are each 120 metres wide by 60 metres high, perched at the end of a 35km enclosed conveyor from the port. You could park two Boeing 747 Jumbo jets in each one … if they weren’t already full of a huge hi-tech iron ore spreader, and a mountain of Australian-sourced iron ore. Mr Koo says, at the outset of planning the hi-tech plant, one of the first calls he made was to Rio Tinto and BHP in Australia to ensure the raw materials could be sourced in sufficient volumes. When he’s asked what it would be like to operate the Hyundai Steel mill without Australia’s cooperation he replies: “It is unthinkable.” To Mr Koo, iron ore is a precious resource. When we ask if to him it’s like gold, he quips: “I think it is more like diamond.”

Later we watch as 25-tonne blocks of steel emerge from oversized ovens, at 1000 degrees C. Bright orange and highly ductile, it’s stretched and pressed into massive rolls just millimetres thick, ready to be stamped into car bodies. The colloquial expression for steel like this is ‘hard coil’. You can fit enough steel for 50 car bodies on the back of a semi-trailer. As we leave the plant we walk past thousands of cooling 25-tonne hard coils, radiating fierce heat and awaiting dispatch.

Fast-forward to making the cars themselves: The factory – factories, actually – at Ulsan in the south of the country manage to create one car every 18 seconds. Press ‘pause’ here and consider that again: a car every 18 seconds. That’s 1.5 million cars annually, four thousand a day, 200 an hour. And the scenes inside would do a Terminator remake proud – in one section at the plant in Asan, which manufactures i45, Grandeur and Sonata, waves of sparks fly as more than 100 individual welding robots pounce on car bodies, working with extreme pace and precision. The only thing missing is Sarah Connor, running, and of course a smarter than average robot with a certain malevolent gleam in its eye. And, of course, Arnie…

What’s notable about car production at Ulsan is that the place comprises the largest car factory on earth. Another jaw dropper. We follow the finished product onto gigantic ships – massive floating car parks with six thousand spaces. The Ulsan plant is a conglomeration of production lines that all end at the port. There is a constant stream of cars being precision parked before they’re shipped. We drive for 10 minutes in a minibus and locate the cars with ‘Australia’ stickers. Teams of drivers punt cars into ships that tower above the port, at breakneck speed – thousands of cars a day are often loaded.

The total time away from Australia, at least for the iron ore that returns here with significant value added, as cars, is six weeks. Our iron ore’s little ‘holiday’ turns a tonne of iron ore with a retail price of about $140 into a car with a retail price of something like $20,000-$40,000, depending on make and model. It’s not all profit, obviously – lots of value is added to that raw material. Steel is manufactured, vast amounts of energy and labour are required, and all the peripheral parts are added. Assembly is a complex task, and there is much logistic support along the way. It is a huge undertaking. Seeing the process unfold is, like I said, a jaw-dropper. The sheer scale of mines, blast furnaces, and massive ships, up close, is an ace way to feel personally insignificant.

But here’s the bottom line – that 10,000-plus per cent mark-up means most of the added value stays overseas. This begs an obvious patriotic question: why not build the cars here in Australia? Add the value here. Employ more Australians. What’s wrong with that picture? Why not develop a proper manufacturing base? It’s not as if we’re scratching around for the raw materials.

Steve Yang is the president of Hyundai Motor Company, based in Seoul. In an interview, he told us the absolute minimum number of cars required to build a profitable factory is 300,000 units annually.

Do the maths on the Australian automotive industry and you’ll see a rather glaring shortfall for every local manufacturer. The total from all three local manufacturers was 75 per cent below this number in 2009. It makes you wonder how much longer the taxpayer funding of the Aussie industry can continue.

Two years ago, Hyundai sold 45,000 cars Down Under. This year, it seems, the company will shift 80,000 cars – a meteoric increase, especially after you consider the timeline here was bifurcated by the GFC. But it’s still going to be rather a long time before we see a car factory and a steel mill here. Not even Toyota can conceive of a time when it will shift 300,000 units a year in Australia.

Still, you really have to wonder about all this. On current estimates, the Pilbara isn’t about to run out of iron ore any time soon. One of the largest iron ore deposits on earth, it’s thought to hold enough resource to satisfy demand for the next four decades. Selling the stuff is a highly profitable business – last year exports totaled a massive $30 billion, almost 15 per cent of the nation’s total exports. It’s hardly a rip-off. It’s a major black entry on the national balance sheet.

Something else about South Korea. It’s being rapidly modernized. This is a country that was literally in ruins in the 1950s as a result of the Korean War. Driving through the country today, there are bullet holes in some of the bridges in Seoul, but you see new infrastructure going in at breakneck speed. Freeways, bridges, masses of high-rise accommodation. That kind of thing. We are on our way to Asan when we are passed by a high-speed train capable of 320km/h. On our way to leave the country we drove over a bridge to Incheon, South Korea’s second-largest city. The bridge is strangely reminiscent of Sydney’s Anzac Bridge … except it is 21km long and six lanes wide (not including breakdown lanes). You could count the 21km bridges here, plus the high-speed trains, here in Australia on one hand…

Seeing this stuff makes you realize how much infrastructure investment is lacking in Australia, and it’s not too hard to join the dots on where the money comes from – manufacturing (of TVs, fridges, cars, whatever) makes money. Lots of it. What a pity we don’t – and, seemingly, can’t – do it here.

So what do you think? Should we continue to ride the tsunami that is the resources boom, or should we start developing a manufacturing base here – encourage foreign investment, make cars here and export them to the rest of the world. Are the profits from selling the raw materials enough to keep Australia wealthy beyond 40 years down the track, when the once mighty Pilbara might just be another big hole in the ground? Was Kevin Rudd on the right track with his proposed mining super profits tax, or had he gone badly off the rails?

Have your say in the comments section below.

Footnote: John Cadogan occasionally works as a consultant to Hyundai Motor Company Australia.






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