BlueScope fears power price spike, takes shot at ‘patchy’ energy and climate policy

Australia’s largest steelmaker is very concerned about the impact of soaring energy prices on its operations.

The Port Kembla Steelworks the home of BlueScope Steel and Colorbond in Wollongong. Picture: AAP

BlueScope Steel has warned the loss of coal-fired power stations including AGL’s giant Liddell facility from the nation’s power grid could raise electricity prices unless sufficient “reliable” generation can be sourced to fill the gap.

Australia’s largest steelmaker (BSL) said progress had been “patchy” on both energy and climate policy in Australia and it remains very concerned about the impact of skyrocketing gas and electricity prices and the declining reliability of supply on the competitiveness of its Australian manufacturing options.

“Whether Liddell stays or goes is a matter for AGL. But if you take capacity out of the market, there is less energy and prices will go up,” BlueScope chairman John Bevan told shareholders at its annual general meeting in Sydney today. “We need to be cautious in changing all of our current power stations to something else unless there is sufficient reliable power there to keep business operating.”

The manufacturer’s concern follows a warning from the nation’s largest single electricity user, Tomago Aluminium, which questioned how it will keep power running at its smelter under Labor’s 45 per cent emissions reduction target and $10 billion plan to turbocharge investment in renewables.

BlueScope said it was disappointed the federal government shelved the national energy guarantee which it said had broad industry support but hopes the current focus on reliability will ensure at least part of the policy remains intact.

BlueScope chairman John Bevan at last year’s AGM. Stuart McEvoy/The Australian

The steel giant said it was agnostic on which technologies would fill the generation gap with Liddell due to shut in 2022 but wants cheaper, reliable power.

“At BlueScope we need reliable power and power that is also affordable and we are agnostic to whatever the technology is,” Mr Bevan said. “AGL need to decide what they want to do — that’s their decision.”

Climate change policies must be effective in cutting global emissions while ensuring policies do not lead to unnecessary closures of domestic manufacturing options, BlueScope said.

“The company’s objective is to seek policy that ensures energy supplies are reliable, affordable and contribute to meeting Australia’s Paris commitments,” BlueScope chief executive Mark Vassella said at the AGM. “We also seek policy that encourages global reductions in emissions from the steel industry, and does not contribute to carbon leakage, in which steel production shifts to other jurisdictions with no environmental benefit.”

BlueScope confirmed first half 2019 earnings will be 10 per cent higher than the second half of 2018 performance of $745 million with robust Australia and US sales volumes offset by a softer performance in Asia.

The steelmaker said Australian sales were strong due to construction activity with residential sales in alterations and additions and new detached residence markets.

However, it also flagged higher costs with elevated metallurgical coal and iron ore prices along with a short-term hit from blast furnace instability at its Port Kembla operation which has since been resolved.

Its North Star steel mill in Ohio, where its weighing a $1bn expansion, is running at full capacity with spreads in line with expectations although margins are tightening in its Thailand, Indonesia and Malaysian building products businesses.

“We need to ‘get fit’ by better aligning the cost base to the current environment,” Mr Vassella said in relation to its building products Asia and North America unit. “To that end, we are initiating a cost reduction program to structurally improve our cost position in these regions. We will also focus on improving manufacturing performance in select areas such as home appliance steels and in Indonesia.”

Macquarie described the trading update as “a little light” given its expectations of stronger growth.

“The reiteration of guidance for 10 per cent growth in 1H19 earnings over 2H18 is lighter than we expected,” Macquarie said in a note to clients. “We currently estimate 19 per cent growth.”

BlueScope shares were trading up 3.3 per cent or 39c to $12.53 in early afternoon trading. The company has shed nearly 19 per cent of its market value so far this year with its FY19 enterprise value to earnings ratio about 15 per cent below its next cheapest-peer ArcelorMittal, according to Macquarie.