BlueScope Flourishing on Steel Demand

On Monday giant South Korean steelmaker, Posco revealed a surge in first quarter profits to more than $US1.3 billion – the highest for 10 years as strong demand for steel products in Asia and the US outweighed the impact of record prices for iron ore.

It was only just over 18 months ago that the company was warning high iron ore and coking coal prices would damage earnings.

Now, with iron ore prices at levels not even contemplated back in mid 2018, BlueScope is more profitable than it ever has been.

Yesterday Australia’s biggest producer, BlueScope, confirmed the news from Posco with another sharp upgrade to its June 30 half year performance and the full year figures.

In fact BlueScope now expects its underlying earnings before interest and tax (EBIT) for June half year to be in the range of $1.0 to $1.08 billion.

If that’s the position at June 30, underling EBIT will top a record $1.5 billion and will be close to three times the underlying EBIT earned in 2019-20 of $564 million.

The new second half guidance is up to a third more than the previous guidance range of $750 million to $830 million.

BlueScope CEO Mark Vassella said, “The business has gone from strength to strength, benefitting from strong spreads, prices and demand. All of the BlueScope team are doing an outstanding job in working to meet exceptional customer demand.”

“The performance continues to demonstrate the unique strength and value of our business model. BlueScope is a very different type of steel company and is in a compelling position to take advantage of emerging trends, such as demand for lower density and regional housing and for e-commerce and logistics infrastructure,” Mr Vassella said.

The company said the major reason for the improvement was the expected result is from North Star in the US.

“Midwest benchmark Hot Rolled Coil (HRC) steel prices have risen strongly since the outlook was provided in February – up by around US$250 per metric tonne, resulting in stronger than expected spreads, noting North Star’s specific sales mix relative to benchmark1. Importantly, the expansion project remains on track, with the new plant to be commissioned during 2H FY2022,” BlueScope explained on Tuesday.

“Australian Steel Products is also benefitting from improved realised domestic and export steel spreads. In addition, domestic despatch volumes are currently tracking ahead of our expectations – particularly for higher value products in the building and construction sector.

“Finally, the Building Products segment is now expected to deliver an improved result over 1H FY2021 earnings, mainly due to expanding margins in the North America coated business driven by rapidly increasing steel prices.

“ASEAN earnings are also anticipated to be better than prior expectations due to higher-than-expected steel prices favourably impacting realised margins,” the company explained.

Like other steel producers, BlueScope is paying record prices for iron ore in Australia so like Posco it is seeing greater gains from market price rises, especially for HRC than from the rise in iron ore prices.

The North Star plant though is an electric furnace operation and uses a mix of scrap metal, alloys, and pig iron. Its flat-rolling mini-mill maintains an annual production capacity of about 2 million tonnes a year. That is an ideal mix with iron ore prices at record levels at the moment.

It also means the plant doesn’t need the costs of transporting iron ore, coal, limestone and manufacturing infrastructure of blast furnace, stockyards, sintering plant and open-hearth furnace.

The price of the favoured 62% Fe fines delivered to northern China rose on Monday to a new high of $US193.58 a tonne, up a huge $US7.33 a tonne. The price of the 62% Fe low alumina fines hit a record $US194.40 a tonne, up $US6.89.

The price of 58% Fe fines rose 5.92% to $Us168.80 a tonne and the price of the high grade 65% Fe fines from brazil jumped $US6 a tonne to a new all-time high of $US226.90 a tonne.

BlueScope shares edged up 0.5% to $22.16.


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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