MELBOURNE -- Australia on Thursday allocated A$1 billion ($636 million) to a fund that will support the manufacture of green iron and its supply chains, including an initial A$500 million to bail out the Whyalla steelworks in South Australia.

On Wednesday, South Australia's premier put Whyalla, one of the country's two steel plants, into administration for unpaid bills, and said he wants to help develop lower carbon steel production in the state.

The A$500 million is part of a broader A$1.9 billion state and federal government package to shore up the steel plant owned by commodities financier Sanjeev Gupta's GFG Alliance. GFG said in a statement on Wednesday it is seeking advice on its options.

Australia is the world’s largest producer of iron ore which earned more than A$100 billion in export income in 2023-24. The wider iron and steel sectors support over 100,000 direct and indirect jobs, according to government figures.

The country will hold elections by May. A key policy for the Labor government under the Future Made in Australia banner is to harness the clean energy transition to drive manufacturing growth and add value to critical minerals.

"Investment in green iron and steel will secure future demand for Australia’s iron ore as the world moves toward lower-emissions iron and steel," the Department of the Prime Minister said in a statement.

The transition represents a threat to Australia's market share of the steel supply chain because of the relatively low purity of its ore requires more processing to cut out carbon.

Australia's iron ore majors are already assessing ways they can reduce carbon from the steel supply chain to meet their emissions targets, but are racing against burgeoning industries in other jurisdictions.

Fortescue plans to produce 1,500 metric tons of green iron using hydrogen at its Christmas Creek operations by year end.

BHP, Rio Tinto, and BlueScope Steel will jointly develop a pilot plant to produce low-carbon iron from Pilbara ores, the companies said in December.

Australian think tank The Superpower Institute puts the country's opportunity for green iron ore and steel at up to A$400 billion.

South Australia is seen as a part of Australia's roadmap to green iron and potentially green steel because it has access to a deep water port, plentiful reserves of high-grade magnetite ore, a steel plant and a high proportion of renewable energy generation in its power grid.

Companies are involved in early-stage green iron technology include Calix, Australia's Element Zero, and Israel-based Helios Project.

($1 = 1.5721 Australian dollars)