BlueScope Steel maintains profit guidance despite signs of slowing in key markets
The rush to regional areas during Covid lockdowns proved a major boon to BlueScope Steel, but the company sees signs that shift is slowing.
The impact of repeated interest rate hikes is flowing through to the construction sector, with BlueScope Steel telling shareholders on Tuesday it is seeing some “hesitancy” in the Australian market.
BlueScope managing director Mark Vassella told shareholders at the company’s annual meeting on Tuesday he still expected another half-year from the Australian and US steel major, with BlueScope confirming August earnings guidance of $800m to $900m for the six months to the end of December.
But Mr Vassella said steel sales had slowed in Australia and New Zealand as the threat of Covid-19 recedes, slowing down the exodus from major cities to regional areas.
“Domestic despatches in Australia and New Zealand have been lower than anticipated due to high channel inventories, particularly in the distribution segment, combined with customer hesitancy driven by falling regional prices,” he said.
“Underlying domestic demand remains solid supported by the ongoing pipeline of construction activity, albeit impacted by labour constraints and weather-related events.”
Mr Vassella said BlueScope’s flagship US steelmaking division was likely to deliver ahead of earlier expectations.
In August BlueScope said its North Star operations had already seen the best of the steel price cycle in the North American market, flagging half-year profit of around a quarter of its $671.6m EBIT in the second half of the financial year on the back of steel spread that were expected to be about $US400 a tonne lower in the current half.
But Mr Vassella said the weakening Australian dollar would benefit the company’s overall bottom line, with North Star now tipped to deliver a result worth about a third of its earnings in the six months to the end of June 2022.
While the BlueScope boss said the $1bn expansion at the North Star mill was still tracking according to plan, its ramp-up was not yet at the point where it was likely to add meaningful earnings for the half.
BlueScope’s ASEAN business – which operates in Thailand, Vietnam, Malaysia, and Indonesia – was likely to make a small loss in the first half, he said.
“The ASEAN businesses are experiencing difficult trading conditions reflecting weaker regional demand in a falling price environment, and accordingly are expected to deliver a moderate loss,” he said.
“Meanwhile, the Indian business is performing well and is expected to make a slightly lower contribution than last half.”
Despite the impact of power prices that have put pressure on major manufacturers across the east coast, Mr Vassella said there had been no change to its plans for the $1bn relining of its Port Kembla blast furnace, with the company having recently won planning permission for the project.
BlueScope shares closed up 78c, or 4.8 per cent on Tuesday at $16.93.