BlueScope set for recovery as flow of red ink eases
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.
Frequently Asked Questions about this Article…
BlueScope shifted to a revenue focus after years of heavy job losses and red ink caused by a drop in steel demand and falling prices. Management cut costs during the downturn and now wants to grow sales and roll out new products to drive a recovery.
In the December half BlueScope reported a $12 million loss, which was a significant improvement from a $530 million loss a year earlier. The company expects a small profit in the second half, signalling roughly a break-even result for the full year.
Shares rallied after the improved result and optimism that the worst may be behind the company, closing up 58¢ at $4.35. BBY analyst Mike Harrowell noted the shares trade below net tangible asset backing and said US steelmakers have historically traded around 0.9 times book in weak earnings periods, suggesting the shares could rise toward about $6 if the growth profile remains intact. He also cautioned that closing the gap to net tangible assets would depend on no further asset write-downs.
BlueScope plans to launch a new-generation Zincalume product mid-year after a 20-year research and development program. The company is spending $60 million to modify production lines so it can begin manufacturing the new product.
BlueScope and its partners are weighing a final decision by year-end on an expansion option for the half-owned North Star Steel venture. They are considering a roughly $400 million program either to boost capacity or to install a direct reduction iron unit, which could help lower costs. The venture currently produces about 2 million tonnes of steel annually—above its rated 1.5 million tonne capacity—with around 400 employees.
BlueScope is targeting growth opportunities in south-east Asia and has seen better activity in the US. Management is wary about the outlook for growth in China, saying a revival in Chinese demand will depend on credit easing. The company also recently won its first order in Russia for a prefabricated steel building to be supplied out of the US.
Yes. December half earnings were helped by a favourable $25 million workers' compensation settlement and $132 million from the sale of carbon credits, proceeds the company used to reduce borrowings.
Managing director Paul O'Malley said the major restructuring is done and being implemented. He said the company expects to be profitable even at the current low point in the market and that the focus now is on increasing sales and implementing new products to support future growth.
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