The use of steel from Spain in an $8.3 billion New South Wales rail project has angered the SA Government, which says the steel should be bought from Arrium's struggling Whyalla works.

Key points: SA says NSW should explain why it is using foreign steel in its Sydney Metro Northwest project

SA says NSW should explain why it is using foreign steel in its Sydney Metro Northwest project Tom Koutsantonis says the Australian steel market is facing an "uncertain future"

Tom Koutsantonis says the Australian steel market is facing an "uncertain future" Senator Nick Xenophon also takes aim at the NSW Government, during a steel rally in Wollongong

Arrium posted a $1.5 billion loss for the half-year to December 31 and said it was considering closing the Whyalla steelworks if it could not turn its financial fortunes around.

A closure would put more than 1,000 jobs at risk and have a detrimental impact on the entire Whyalla community.

SA Treasurer Tom Koutsantonis has slammed the NSW Government for not supporting local industry with the Sydney Metro Northwest project.

"It is astounding that NSW has chosen to ship steel from Spain for this project at the very time the Australian steel market is facing a most uncertain future," Mr Koutsantonis said.

"The NSW Government should explain why Australian rail was not preferred for the Sydney Metro Northwest project.

"This 6,500 tonne supply contract should have gone to local steelmaker Arrium to support Australian jobs."

The NSW Government defended its use of the imported steel in a statement issued on behalf of Minister for Transport and Infrastructure Andrew Constance.

"The project went to a competitive tender process with Australian and international vendors," the statement read.

"We looked at ability to deliver on time."

But the Member for Giles, which covers Whyalla, Eddie Hughes, said the decision to use imported steel was a disgrace.

"We see other countries doing all in their power to protect and look after their steel industries because they recognise that it's a strategically important industry that supports a lot of jobs," Mr Hughes said.

"So to see a state government take this course of action is very disappointing."

No excuse for imported steel: Xenophon

South Australian Senator Nick Xenophon has used a rally in support of the steel industry in Wollongong to take aim at the NSW Government.

The trade union organised rally outside the Port Kembla steelworks was staged to coincide with the first public hearings of a senate inquiry into the future of the steel industry.

Most of the speakers called for policies that make sure Australian steel is specified in government contracts.

Senator Xenophon said the NSW Government is one of the worst offenders at favouring foreign over Australian steel.

"The NSW Government has been a disgrace in the way it has implemented its procurement policies," Senator Xenophon said.

"It has recently imported 100 kilometres of steel rail track from Spain for one of their infrastructure projects and there is no excuse for that.

"It could have been procured locally."