Finance Minister Damien Tudehope said free trade agreements would prevent this, and appeared to suggest the Australian Constitution could even be a constraint.

"There would probably be all sorts of constitutional and free trade issues that would arise in relation to such a mandated order," Mr Tudehope said, after being questioned by Greens MP David Shoebridge in the NSW Budget Estimates committee.

"We have obligations under a whole range of free trade agreements, which would prevent us - in fact it would be illegal to mandate it."

Mr Tudehope did not specify what would make such a mandate "illegal".

Mr Shoebridge said this position was "absurd".

"The Government has an opportunity to create jobs and boost the local economy and their excuse is that their hands are tied?" he said.

"The needs of local communities, not multinational trade agreements should be our top priority.

"Unemployment in the Illawarra is higher than the state average. We need to transition workers out of the mining industry.

"The state is facing recession from the dual shocks of the coronavirus and the bushfires. The obvious solution is to boost the local economy by using local steel for rebuilding."

Mr Tudehope told the Mercury the Government was "getting on with the job" of rebuilding.

"Laing O'Rourke [is] using local contractors where possible," he said.

"When it comes to procurement of materials for use in construction projects, government agencies are expected to ensure best value for taxpayers when engaging contractor services, which can include the procurement of steel.

"It's interesting Mr Shoebridge has suddenly taken an interest in the steel industry in NSW, an industry which wouldn't exist if it were not for our world class mining sector."

In 2017 then water minister Niall Blair announced local steel would be used in the 270km Broken Hill water pipeline, saying the tender had specified it be so.