BLUESCOPE Steel has shifted its focus to increasing revenue after years of heavy job losses and red ink as it cut costs due to a drop in steel demand and a fall in prices.
Even so, it is wary of the outlook for growth in China as it looks to seize sales opportunities in south-east Asia as it beds down its new Asian venture with Nippon Steel ahead of the launch mid-year of its Zincalume product after 20 years of development.
In the December half, BlueScope lost $12 million, a turnaround from a $530 million loss a year earlier, and expects a small second-half profit, which signals a break-even result for the full year.
BlueScope's shares rallied hard on the rebound, amid optimism that the worst is now behind the company. Its shares closed up 58¢ at $4.35, pulling Arrium, the former OneSteel, higher in its wake. Arrium gained 8¢ to $1.26, before its interim results are released on Tuesday.
"It's a result without any write-downs," said BBY analyst Mike Harrowell. "The shares are trading below net tangible asset value. US steel makers historically have traded at 0.9 times book during periods of low earnings. Its shares should rise to about $6, as long as the growth profile is intact."
BlueScope's net tangible asset backing is $6.86, although closing this gap would depend on no further asset write-downs, Mr Harrowell said.
"The major restructuring is done and being implemented," BlueScope managing director Paul O'Malley said. "We expect to be profitable at this very low point in the market. We have to change our focus to increase sales, increase new product implementation."
BlueScope is to launch its new-generation Zincalume product in the middle of the year after a 20-year research and development program. It is spending $60 million to alter production lines so it can begin manufacturing the new product.
As well, a final decision is to be made by the end of the year on the expansion option to be pursued at its half-owned US venture, North Star Steel.
The partners are considering a $400 million program either to boost capacity or to install a direct reduction iron unit, which would help lower costs.
The venture produces about 2 million tonnes of steel annually, which is well above its rated capacity of 1.5 million tonnes, with just 400 employees.
"We are seeing better activity in the US . . . but China is probably a little softer," Mr O'Malley told analysts. "There is a lot of growth in south-east Asia. We have to get our skates on to get that."
Additionally, the company has just won its first order in Russia for a prefabricated steel building, which it is to supply out of the US.
A revival of demand in China "will depend on credit easing, which is on the cards", Mr O'Malley said. "For the first time in four years we're looking at reporting a profit. We have turned the business around. The foundation is there for growth."
In the December half, earnings were flattered by a favourable $25 million workers' compensation settlement along with $132 million of carbon credits, which were sold to reduce borrowings.