BlueScope posts record results, but Vassella warns on Australian energy upheaval
A buoyant market has delivered record results for the steelmaker’s shareholders, but uncertainties remain amid possible disruptions to the grid.
BlueScope Steel boss, Mark Vassella, said upheavals in the Australian energy sector made him “nervous” for the future of the east coast energy network, despite buoyant markets delivering the company’s best ever half-year result.
BlueScope posted a $1.64bn half-year net profit on Monday, a record since it was spun out of BHP 20 years ago, and Mr Vassella said the good times look set to continue for some time.
The company booked underlying earnings before interest and tax of $2.2bn for the half, and said it expects second half EBIT to come in at $1.2bn to $1.35bn.
BlueScope will pay a 25c a share dividend on the back of the stellar result, and extended its on-market buyback by another $700m to return surplus cash to shareholders.
And, while BlueScope said it still faced “elevated risks” from Covid-19 and the global supply chain crunch – as well as geopolitical tensions – Mr Vassella expects demand to stay particularly strong over the next few years.
He said the shift out of high-density housing in Australian cities would continue to support growth in some of BlueScope’s key Australian products – such as its iconic Colorbond offerings.
China’s decision to limit the growth of its own steel output, and the strength of the US economic recovery, also add to a bright outlook for BlueScope, Mr Vassella said.
But the BlueScope boss said he was still nervous about energy costs in Australia, particularly given the week of upheaval in the local energy sector.
Last week Origin Energy announced it was bringing forward the closure of its Eraring coal-fired power station to 2025, seven years ahead of expectations.
And over the weekend, technology billionaire Mike Cannon-Brookes and Canada‘s Brookfield launched a takeover for AGL, putting the acceleration of the closure of AGL’s coal plants in NSW and Victoria at the heart of their bid.
Despite promises from the consortium that it would not take AGL Energy’s giant coal plants out of the system until the equivalent replacement generation is in place, Mr Vassella told reporters on Monday that the prospect of grid instability caused by coal closures made him nervous.
“The game is changing constantly. What I hope and what we’re agitating for is that there is an orderly transition, but it’s not obvious yet to me there’s a solution that would see us through some of these closures. And yes, there might be enough power. But it’s got to be reliable as well,” he said.
“The impact on reliability and affordability are what matters to manufacturers. Right now, so I don’t know that I feel any better about being able to plan forward by what’s occurred in the last week.
“It’s probably made me a bit more nervous, quite frankly.”
BlueScope’s North Star operations in the US were again the star of its half-year results, delivering EBIT of $1.23bn, double their profit in the six months to the end of June 2021.
And the company’s Australian steel arm booked EBIT of 687.8m, up 165 per cent on the same period the previous financial year.
BlueScope says it is pushing ahead with plans for a major refurbishment of a mothballed blast furnace at its Port Kembla steelworks in NSW, but says it has broadened the scope of the project to improve the efficiency and emissions performance of the plant in the hope of reducing its carbon emissions by up to 20 per cent.
But reducing the plant’s environmental footprint will come at a cost, with the refurbishment and relining of the blast furnace now projected to cost about $1bn, up from earlier estimates of $700m to $800m.
Macquarie analysts said the half-year result was undermined by the weaker outlook as steel margins contract across the company’s operations.
“Result was a touch weaker than expected and guidance is softer as the steel price cycle turns and spreads contract aggressively, both in Australian steel products and North Star,” Macquarie analysts said in a client note.
BlueScope shares closed down 25c, or 1.3 per cent on Monday, at $18.83.