BlueScope cuts first-half profit guidance as economic slowdown, US election weigh
The steelmaker will target $200m in cost savings as ongoing cost inflation, a slowdown in China and uncertainty ahead of the US election impact its earnings.
BlueScope expects a first-half profit hit as record levels of Chinese exports, inflation and uncertainty in the US ahead of a nailbiter election impact the global steel industry.
The ASX-listed steel giant now expects underlying earnings before interest and tax (EBIT) for the six months to December to be in between $270m and $310m, compared to its previous guidance range of $350m to $420m.
The company will target a further improvement in annualised earnings through the identification and delivery of about $200m of cost and productivity initiatives across the business as it looks to navigate a range of economic factors.
BlueScope chief executive Mark Vassella said challenging operating conditions were not only facing the group, but the broader global steel industry. Those challenges included softness in the East Asian market, ongoing cost inflation and “a period of pause and uncertainty” in the US pending the outcome of the presidential election and timing of further rate cuts.
“Whilst these pressures are impacting performance in the near-term, we are confident in BlueScope’s resilience, underpinned by a robust balance sheet, diversified business model and strong operating disciplines,” he said.
“BlueScope has a culture of rising to these challenges, and we will continue our work in balancing near-term performance with longer-term sustainable growth and returns.”
In North America, its North Star division will deliver a result slightly below one third of that in the 2024 fiscal year following recent moderation in forecast realised spreads relative to prior expectations, which have not been offset by expected run-rate volume improvements.
BlueScope has also observed customers deferring orders in the buildings and coated products segment until the operating environment gains some certainty on election outcomes and timing of future rate cuts.
The company said while it continued to expect stable domestic demand in Australia, the performance at Australian Steel Products (ASP) has been impacted by softer export coke contribution, unfavourable impact of the sustained softness in East Asian steel pricing and intercompany profit in stock eliminations.
ASP now expects to deliver first-half EBIT around two thirds of that in the second half of FY2024.
The company said performance in the China business has been impacted by the softening domestic Chinese economy, and the South East Asian business has been affected by short-term operational challenges in Thailand, which have since been resolved.
The Coated Products Asia segment is now expected to deliver a result similar to the previous half. The revised guidance is subject to spread, foreign exchange and market conditions.
Mr Vassella told The Australian in August that ensuring the survival of Australia’s steelmaking capacity would require tight co-operation from all levels of government, with the company facing energy costs in some cases triple those of overseas rates and a deluge of cheap steel coming out of China.
“Subsidised steelmaking at that sort of level (in China) could destroy the domestic market, so we’ve argued strenuously, not only for us, but even down through the supply chain for our customers, around fabricated steel, to ensure that we’ve got an appropriate anti-dumping regime.,” he said.
Citi last week cut the recommendation on BlueScope to neutral from buy as analyst Paul McTaggart cited a peak in US steel prices with the prospect of higher scrap prices exerting pressure over the coming months, combined with a faster than expected contraction in China steel consumption.
Mr McTaggart on Tuesday said BlueScope’s businesses are cyclical with certain exposure to a volatile commodity prices and emerging markets. The broker has set a target price of $23 per share, a near-10 per cent return from current its price.
Shares in BlueScope fell 0.5 per cent to $21.08, taking total losses since the start of the year past 10 per cent.
BlueScope is scheduled to hold its annual meeting on November 19 in Wollongong and also online.