Australia’s largest steelmaker, BlueScope Steel experienced a sharp recovery in first half earnings, but doesn’t expect that trend to continue in the second half of the current financial year.
The company yesterday revealed a 24 per cent rise in interim profit to $388 million after tax.
That wasn’t as solid as the rise in EBITDA (earnings before interest, tax, depreciation and amortisation) which rose 34 per cent to $794 million, from the $593 million on the same half of 2006.
The company said in its commentary that “We do not currently expect our second-half financial result to be as strong as the first-half”.
But it does expect the full year result to be ‘significantly’ better than the $338 million net profit earned in 2006 which in turn was sharply lower than the record $982 million in the previous year as the company rode the early stage of the international steel boom.
The last half of the 2006 year also saw profits slashed by a sharp rise in the prices of raw materials such as iron ore, coal and zinc
The better result at EBITDA level was reflected in its gross margin.
As a result the EBITDA/sales margin rose to 17.5 per cent from 15.2 per cent in the first half of 2006, pointing to the better operational result for BSL and a more profitable production mix thanks to price rises for some key products.
Sales rose 16 per cent to $4.528 million from the $3.892 million for the first half of last financial year.
That was on record steel shipments of 3.7 million tonnes for the half, compared to 3.5 million tonnes.
Interim dividend was lifted slightly to 21c a share from 20c a share, despite a solid rise in earnings per share to 54.7c from 44c. The shares rose 10c to $9.85.
BlueScope lifted the price of its main product, hot-rolled coil which is used to make pipes and tubes rose by $150 a metric ton in July and August of last year. That helped offset the dramatic rise in raw material prices in the last half of 2006 which slashed second half earnings by more than 90 per cent.
“The key factors for the earnings improvement were higher sales volume and higher steel prices internationally,” BSL said in a statement.
But that strength is not expected to hold in the current half with average prices for hot rolled coil and slab globally expected to be ‘moderately lower’ than first-half average prices.
BlueScope said that “In North America, although scrap costs are rising and demand in the automotive and housing sectors is softening, we expect overall steel demand to slightly improve late in the second-half”.
In Australia, BlueScope expects the construction market to remain strong but says weakness will continue in the automotive and manufacturing sectors while a stronger Australian dollar could cut local sales volumes.
BlueScope said its Asian business improved strongly in the half, but Thailand had been hurt by a slowdown in activity caused by uncertainty after the military coup.
And the company has confidence that growth in Chinese steel output is slowing as the Government moves to further rationalise uneconomic facilities.
Higher zinc and aluminium coating metal costs stripped $204 million out of first-half group earnings.
Swings and roundabouts: some of those higher costs ended up at the likes of Zinifex and Oxiana, BHP Billiton, CSR and Rio Tinto in the form of higher prices for their zinc and aluminium exports.
