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BlueScope Confirms Energy Costs To Weigh

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BlueScope Steel says it is still on track to report sharply lower underlying result for the six months to December.

The company’s 2016-17 annual meeting was told yesterday by outgoing CEO, Paul O’Malley that the country’s biggest steelmaker confirmed “the first half guidance provided to the market on 21 August is on track.”

"While there has been some movement in the macroeconomic indicators since then, this is not expected to have a material impact on financial performance in 1H FY2018,” Mr O’Malley told the meeting.

Guidance for the first half issued with the August annual figures for 2016-17 said BlueScope “currently expects 1H FY2018 underlying Earnings Before Interest and Tax (EBIT) around 80% of 2H FY2017 underlying EBIT (which was $527.3M). Expectations are subject to spread, FX and market conditions.”

That means underlying EBIT for the current half will come in around $420 million, substantially down on the $US603 million earned in the first half of 2016-17.

In the August guidance for the current half, BlueScope said there were a number of factors impacting the outlook.

These included: "U.S. steel margins are lower due to scrap prices increasing ahead of steel prices; As trade restrictions take hold in global markets, import product offerings are taking advantage of gaps in the Australian anti-dumping regime, which together with volatility in FX, is leading to lower domestic steel margins; and Productivity improvements at ASP are not yet fully offsetting the scale of energy cost escalation in FY2018.”

In his final address to shareholders as CEO (after 12 years), Mr O’Malley repeated his warning about rising energy costs.

“(y)ou as shareholders should be aware that BlueScope’s Australian electricity costs are forecast to increase 93% between FY2016 and FY2018, with gas costs increasing 33% over the same period. And these sorts of increases are being faced by manufacturers, businesses and households across the country – dampening investment and employment, and squeezing household budgets.

"The increase in domestic gas prices since 2015 has cost Australian gas users approximately $3.5 billion per annum. For electricity, the cost to users of rising electricity prices is over $3.7 billion per annum.

"And so, in the first significant breakthrough in this national crisis, the Company welcomed the recent announcement by the Federal Government that it had secured a guarantee on gas supply from the major gas companies.

"The Prime Minister announced on Wednesday 27 September that domestic gas supply will meet the expected shortfall over the next two years. This is good news, as it means the start of a properly functioning gas market – one where prices can be expected to moderate as more sellers meet customers’ demand and commercial offerings reflect global markets. In due course this should be of benefit to BlueScope – and all Australian energy consumers.

"While political debate continues, there remains one constant truth in all this – Australia must have baseload power for Australia’s everyday life and its economy to run in an orderly manner.

"Debating future coal or gas, hydro, nuclear or renewable energy supply, is fine – so long as there is a sensible transition over the next 10 years that secures our everyday life and living.

"Without an adequate 10 year transition plan that addresses electricity affordability and reliability – we are condemned to even higher prices and more reliability issues.”

BlueScope shares ended down 0.2% at $11.49.

View More Articles By 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.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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