North Star steel mill shines for BlueScope in $2.8bn net profit

Most striking about steel manufacturer BlueScope’s $2.8bn net profit results and record underlying earnings on Monday is the US growth story.

BlueScope chief executive Mark Vassella has only just returned from the North Star mini-mill in Delta, Ohio, where the company has added another 850,000 tonnes per annum of steel capacity with the first coil produced in June.

In 18 months’ time North Star will have 5 per cent of America’s flat steel production.

The US was the biggest contributor to BlueScope’s earnings in the second half and Vassella says plenty of opportunity will follow. BlueScope has $5bn invested in the US and 4000 employees.

The attraction of America goes well beyond strong construction demand, from data centres to windmills.

Vassella says US energy costs have returned to about half of Australia’s costs and is reliable. This has given BlueScope confidence to invest more than $2bn in the last 12 months to expand the portfolio in the US.

The US also comes with ESG benefits because BlueScope’s steel making in Ohio is done through recycling scrap metal.

The North Star mini-mill is a scrap-based electric arc furnace quite different from the Port Kembla blast furnace in Australia. This makes a material difference to BlueScope’s emissions.

Vassella may be investing in a hydrogen future for steel but he also consistently argues the technology is a decade away.

Yet it is often forgotten that steel from recycled scrap is already greener steel, emitting far less carbon.

“It absolutely lowers the intensity of our entire portfolio,” says Vassella.

“Typical emissions intensity for a blast furnace is around two tonnes of carbon from every tonne of steel – emissions from a scrap- based electric arc furnace is about a half a tonne.”

As ESG activism shifts to the need for a circular economy scrap recycled steel is central casting.

To gain greater control of the supply chain BlueScope has acquired three scrap processing sites, the most recent this month in North Star’s back yard, just 160 kilometres away.

BlueScope is one several Aussie businesses banking on the US for growth. At Brickworks, chief executive Lindsay Partridge has been busily buying up largely family owned brickworks, and rare earths miner Lynas chief executive Amanda Lacaze has landed a shiny new contract with US defence to build a heavy rare earths plant in Texas.

The strategy did not work for Boral. After a seven-year foray into the US in 2020 the company was forced to make major writedowns and has now withdrawn under new owner Seven.

Vassella says BlueScope has been in the US for decades, buying the Butler business in 2003 and before that the Steelscape assets. His US growth principles are not too big and close to the core.

BlueScope’s $717m Coil Coatings acquisition in June makes it the second largest coil painter in the US. But this makes sense. BlueScope does coil painting in every other market it operates in, think Colorbond.

BlueScope chief executive Mark Vassella. Picture: Hollie Adams

And the recycled scrap acquisitions have a natural adjacency with its US steelmaking and locks in supply.

“With security of supply chain, people are more intent on ensuring there is sovereign capability in cases like ours,” says Vassella.

In Australia, Vassella stresses the importance of Port Kembla’s sovereign steelmaking capability. The political importance of the plant, given the thousands of jobs in the Illawarra, should not be overlooked.

It is no surprise that Vassella is vocal on energy prices. BlueScope has longer contracts in place but he worries for customers. “It terrifies me about the longer term impact when people pack up their tent and go home because no-one’s making any money out of it,” he says.

The company’s softer than expected outlook of $800m to $900m underlying earnings for the first half of 2023 reflects a climb down from record steel prices and reduced spreads in the US and Asia. As prices come off, Vassella says the buyers sit on the sidelines and run down inventory. Yet the board’s confidence under chair John Bevan is clear in the decision to return shareholders almost $1bn through dividends and a share buyback and to announce a further buyback of up to $500m.

BlueScope shares rose 3.9 per cent on Monday.

Vassella also shared a new growth story, this time in Australia. He announced an 18-month masterplan for the 200 hectares of land around Port Kembla.

“It’s an enormous opportunity for a parcel of land of that size close to Sydney and on a port and in a community that we can leverage over five to 10 years,” says Vassella.

“This is stepping back and thinking what is surplus and then how we can bring in the best people to think about how we can re-imagine it, repurpose and transform it. Some of it will be commercial, some will be about the social benefit and the community.”