Australia’s two big steelmakers – BlueScope Steel and OneSteel – have never had it so tough, with a strong Australian dollar, higher raw material costs and low margins cutting into their value. Bluescope got the ball rolling last week, flagging a $900 million write-down and possible job cuts at its Port Kembla operations, and OneSteel’s full-year profit numbers didn’t make happy reading either. The company posted a 6 per cent drop in underlying full-year profit and is set to cut steel production and more than 400 workers. The local manufacturing division was a particular disappointment as it slumped to a $185 million loss, but the one big positive for OneSteel was its iron ore mining business. With both steelmakers under the pump, it’s hardly surprising that talk of the two tying the knot (combining BlueScope’s bigger Port Kembla blast furnaces with OneSteel's iron ore supply) at some stage have grown stronger in recent times. While OneSteel boss Geoff Plummer has hosed down speculation of an imminent tie-up he hasn’t ruled it out, especially if conditions continue to deteriorate. Plummer’s reticence about the merger stems from the fact that the two businesses are very different and he has a point. OneSteel has a far greater exposure to a turnaround in domestic steel demand and focuses on building long products used in construction and infrastructure sectors, while BlueScope specialises in hot-rolled coil and coated steels, which it sells to export markets. The issue might not be as cut and dry as combining the blast furnaces of the two steelmakers but consolidation may be the key to surviving the tough market conditions, especially if the world is headed for a lengthy slowdown. OneSteel’s latest results have been largely boosted by iron ore sales with the core steel-making business in trouble. The tipping point for OneSteel’s Plummer could come down to the Australian dollar, which is widely expected to continue outperforming the greenback in the near-term. With a resurgent dollar and the domestic steel business facing significant headwinds, a merger could still very much be on the cards.