BlueScope still feeling price pinch impact on earnings

BlueScope Steel continues to brace for a bite on earnings due to weaker steel prices.

Weak steel prices are hurting Bluescope earnings.

BlueScope Steel sees a slight improvement in the housing market in the second half of the financial year, but tough conditions for the Australian steelmaker remain.

BlueScope boss Mark Vassella told shareholders at the company’s annual meeting in Brisbane that a “modest” improvement in the Australian housing sector had helped offset weakness in its Thailand and Malaysian businesses, and falling demand for steel in New Zealand on lower-than-expected infrastructure spending.

However Mr Vassella said BlueScope continues to brace for pressure on earnings due to weaker steel prices and spreads across its steelmaking operations.

Mr Vassella said BlueScope expected its first-half performance to remain in-line with August guidance, of a 45 per cent fall in underlying earnings before interest and tax from last financial year’s $499 million result.

“The first-half of the 2020 financial year outlook is softer than the prior half due to weaker commodity steel prices and spreads across our steelmaking businesses in the US, Australia and New Zealand. However, demand in BlueScope’s major markets remains stable,” he said.

Mr Vasella said BlueScope’s US North Star business was tracking well, with a $US700 million expansion of its Ohio steel plant to add around 850,000 tonnes of annual capacity to the plant on schedule and budget, and all of its operations running at full capacity.

“The business has benefitted from modestly better realised raw material costs and selling prices,” he said.

Credit Suisse analyst Michael Slifirski said Bluescope’s trading update was relatively positive, telling clients in a Thursday note the company appeared to be on track for a second-half earnings recovery.

“We view the trading update as a positive, confirming first-half guidance when the risk was to

the downside, and bringing clarity to some key risk areas revealing either limited earnings impact from weaker Asia and New Zealand businesses, and stronger than expected Australian domestic volumes,” he said.

“Furthermore, commentary does not suggest any heightened risk areas heading into the second half, particularly with respect to demand which has been reported to be broadly stable in Bluescope’s major markets.”

Given the update, Mr Slifirski said a second-half earnings improvement of about $90 million, to reach consensus forecasts of about $640 million, “does not appear overly challenged”.

Last financial year BlueScope booked a net-profit of $1.02 billion, 35 per cent on the previous year, but said it had recorded a 6 per cent rise in underlying EBIT to $1.35 billion, its third successive year of underlying earnings above $1.1 billion.

Earlier, chairman John Bevan told the meeting BlueScope continues to advocate to remove barriers to trade and “encourage all countries to abide by international trade rules”.

“This has included supporting the Indonesia – Australia Comprehensive Economic Partnership Agreement, which will cut tariffs on steel trade between the two countries, and opposing the imposition of steel tariffs by the US Administration,” Mr Bevan said.

“We have also sought to ensure the countries in which we manufacture have fair and effective anti-dumping policies that discourage the predatory dumping of steel which undermines the viability of those domestic markets, costs jobs and discourages further investment,” he said.

BlueScope shares closed up 28c, or 2 per cent, on Thursday.