Dollar correction gets top marks from Arrium
One of the nation's biggest steel makers has said it is well positioned to benefit from the recent slide in the Australian dollar, as ongoing weakness translates to a boost in earnings.
The comments by Arrium's new chief executive, Andrew Roberts, come as analysts tip the Australian dollar could test US90¢ amid a busy week of economic data.
Analysts said the dollar, which has shed more than 14 per cent of its value since mid-April, was vulnerable to further weakness after it fell to as low as US90.42¢ on Monday morning, down more than a cent since Friday.
"The Australian dollar's almost living on borrowed time above US90¢," NAB currency strategist Ray Attrill said.
The falls are welcomed by key exporters, who have struggled in the face of a currency trading above parity. Other resource players who will strongly benefit from a weakening Australian dollar include Alumina Limited and Whitehaven Coal.
The benefits are not as strong for multinationals such as BHP Billiton and Rio Tinto, but those companies still enjoy about a 6 per cent earnings boost with every 5¢ fall in the Australian dollar.
Even so, Mr Roberts - who took charge of Arrium last week - was not banking the steel maker's future on swings in the currency, vowing instead to focus on the things he can control.
Ranking as Australia's second-biggest steel maker, Arrium was previously known as OneSteel.
"With our focus on continuously reducing our costs, improving operational performance and reducing working capital, we believe the business is very well positioned for any upside associated with either a depreciating dollar, which we are seeing at the moment, or any modest improvement in volume," Mr Roberts told BusinessDay.
Aside from increasing its iron ore exports from South Australia, Arrium is also divesting non-core assets, and restructuring its steel operations into a single business.
Arrium has traditionally been said to enjoy a $12 million boost to earnings before interest and tax with every 1¢ movement in the currency, and Credit Suisse analyst Michael Slifirski believes that sensitivity could be even higher now the company has increased its iron ore exports.
Some believe the falls in the dollar have further to go. Canadian Imperial Bank of Commerce (CIBC) said it expected the currency to fall to US87¢ by year's end and trade between US84¢ and US89¢ in the six months after that.
"It's not a collapse," CIBC strategist Patrick Bennett said. "We think it's a return to reality for the currency. It was stronger than could be justified by fundamentals for a long time and now it's correcting towards a more normal rate."
Currency strategists said the dollar could slip below US90¢ - a level it last touched in early September, 2010 - if there was a weaker-than-expected NAB business confidence survey on Tuesday and a soft labour force report on Thursday.
Thursday will also see the release of the minutes of the US Federal Open Market Committee's mid-June meeting, which sparked a sharp fall in the Australian dollar, after the US central bank laid out a potential road map on a pull-back of its stimulus program this year.
Financial markets will be closely watching US Federal Reserve chairman Ben Bernanke's address on the same day.
The latest Chinese trade data due on Wednesday, as well as Gross Domestic Product figures on Monday, could also be a trigger, Commonwealth Bank currency strategist Peter Dragicevich said.