Liberal MP Rowan Ramsay has warned the big four banks that if Arrium's Whyalla steelworks close, local housing and business markets may follow, devastating the town. He also warns that a clean-up bill approaching a billion dollars could also be left behind.
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The Whyalla steel works are based in Mr Ramsay's seat of Grey and he told Fairfax Media the social and economic costs to the town of the plant closing would be enormous as he urged the banks to give administrator Grant Thornton time while stressing taxpayers should not "foot the bill" to keep the plant open.
"This plant is putting out 950 thousand tonnes of steel, it can do 1.2 million a year. The best way for the banks to minimise their losses is to keep the steel plant running," he said.
"It it closes, it would be a rolled gold disaster for Whyalla. This city is almost totally dependent on iron ore and steel. The social and economic costs would be enormous. And the clean-up bill would at least be in the hundreds of millions."
"Plus the banks would be the No.1 backers of private property in a place like Whyalla. What would happen to their mortgage book? It would collapse across the board if the markets collapse."
Arrium employs about 6600 people across the country, including 1500 people in South Australia, although not all of those South Australian employees work in Whyalla, which is home to about 20,000 people.
Close to 3000 members of the company's workforce are based in New South Wales, and about 1000 people are in various sites across Victoria, but it is the Whyalla site that is most at risk since the company went into voluntary administration with an estimated $120 million in orders needed over the next two years for the plant to keep operating.
The company owes the big four banks about $1 billion, with total debts of at least $2 billion and potentially more than 100 other creditors.
Amid growing concern over the future of the steelmaker in Australia, Treasurer Scott Morrison accused Bill Shorten of a "knee-jerk reaction" after the Opposition Leader called for government to preference local steelmakers as he pointed to the bringing forward of an $80 million spend on steel for a government rail project.
"What you don't is you don't get involved in a knee-jerk reaction, the sort of thing that says: 'Let's tear up our trade agreements, let's tear up the jobs in the new economy', to go and play politics with an issue in South Australia," he said.
However, Industry Minister Christopher Pyne, a South Australian, said on Friday that state and territory governments should be using federal taxpayers dollars to buy Australian steel where possible.
"Sometimes it's not always exactly possible, we don't always necessarily make every kind of steel, but where we do, we should be allowed to compete," he said.
Over the weekend, Malcolm Turnbull, his officials and Mr Pyne hit the phones to talk to key players, including the banks - the Prime Minister is said to have spoken directly to NAB chairman Ken Henry - to ask for Arrium to be given more time to fund a solution to its current dilemma.
While he had spoken to the banks over the weekend, Mr Turnbull added that Arrium had many difficulties, some of them unrelated to the steel industry.
"Steel prices have slumped, there is over-capacity globally and so forth. But there have been some poor - I think it would be fair to say, you've only got to read the business pages to see there have been some poor decisions taken by the company overall," he said.
Mr Pyne and South Australian Labor Treasurer Tom Koutsantonis both met with the company's board-appointed adminstrators, Grant Thornton, as did the Australian Workers Union chief, Scott McDine.
Mr McDine said discussions with Grant Thornton had been positive and consultations would continue.
"We will work with any administrator, going forward, to ensure that the interests of the workers and AWU members are well and truly represented."
