Indicative Asian hot rolled coil steel spreads are now below US$200 per tonne, down from an average of around US$295 per tonne over the five years to 30 June 2014.
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BlueScope Steel has bounced back from last year’s heavy loss to report a full-year profit of $136.3 million, however this may not be enough to save its steelworks at Port Kembla.
The Bluescope accounts also recognise $44 million in tax losses available to New Zealand Steel to offset against future income, but no further such losses will accrue “until a return to taxable profits can be demonstrated”. The steelmaker of Australia plans to inform its investors about the progress of the review in November during its annual shareholder meeting.
The cuts are far deeper than the $125 million – or $50 a tonne – flagged earlier this year.
BlueScope is pursuing cost reductions in raw materials, manufacturing, procurement, supply chain and property and is targeting more than $200m in annual permanent cost reductions in Australia and more than NZ$50m in New Zealand by the 2017 financial year.
“At these prices, it would be more competitive to externally source steel substrate then to continue to operate our Australian and New Zealand steelmaking operations – unless we deliver a game-changing approach to costs to improve their competitiveness”, Mr O’Malley said.
BlueScope hopes to address much of the cost cutting through a new enterprise bargaining agreement that is now being negotiated.
Blue Scope said it expects first-half underlying earnings before interest and taxation (EBIT) in fiscal 2016, to be similar to the $130.8m EBIT recorded in the second-half of fiscal 2015, which was itself a 15 per cent year-on-year increase.
The company needed a “more flexible and productive approach to labour” to keep Glenbrook running, BlueScope managing director and chief executive officer Paul O’Malley said.
BlueScope now employs around 2,000 workers at its Port Kembla blast furnace, with another 1,500 contracting jobs dependent on it in the Illawarra. That included an A$11 million accounting entry reflecting the reduced value of iron sands inventories.
Mr O’Malley hailed the federal coalition’s abolition of the carbon tax, which its overseas competitors did not pay, and said he’d had positive talks with NSW premier Mike Baird.
“We are the third largest manufacturer of painted and coated steel products globally, the number one in building and construction markets and the recognised quality leader in nine countries”.
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A fully-franked dividend of 3 cents per share has been declared.
