Australia’s second steel maker, OneSteel says it can see more glimmers of better times ahead, but recovery will be slow and fitful.
In a presentation to an investment conference, CEO Geoff Plummer said the company can see "a modest increase in underlying demand, but conditions to remain challenging".
"We are encouraged by a gradual and broad-based improvement in demand over recent months."
"We are well placed to manage through remainder of downturn with leading market and strong niche positions and manufacturing flexibility; our "back to basics" initiatives position our manufacturing, distribution and recycling businesses to benefit from improved activity levels."
"We have a much stronger balance sheet post "back to basics" initiatives".
He said the mining sector was still seeing strong spending on consumables; "residential – some recovery in activity levels; non-residential and engineering – positive impact from government stimulus".
But the weakness in non-residential private investment is expected to continue; the softness in manufacturing will continue and demand from the rural sector will remain "patchy".
Mr Plummer said OneSteel was looking for improvement from the government’s stimulus packages in 2010, especially the Building Education Revolution from end 2009 and the larger infrastructure projects from mid next year.
"Steel prices appear to have passed the bottom, but he added that volatility is expected to continue in raw material prices and $A rate.
"Internationally stimulus spending is "biased towards long steel products" (which is what OST specialises in).
"International steel is expected to have overcapacity in the near-term and this will impact prices for steel and steel making inputs."
But there is increased confidence in iron ore and recycling that the market bottom has passed and demand is strengthening
Overall, Mr Plummer said that the fundamentals in the international market will remain sound, but he expects volatility in both domestic and international prices.
However while world steel prices will improve, they will "not reach 2008 high".
"Domestic steel prices to remain relatively high underpinned by high steelmaking input costs
"Domestic demand to lift through increased activity from improved economic conditions, greater confidence and impact from government stimulus initiatives."
Mr Plummer said the company was "resetting the cost base of the business" through cost cutting; was looking for the "positive impact of increased production levels on unit costs" in the coming year; "lower raw material costs –especially coal"; increased electric arc furnace utilisation, lowering unit costs; increased iron ore sales (6 million tonnes this year) and "improved domestic steel sales volumes (with the prospect of further improvements as economy strengthens)".
The company reported a 6% fall in annual profit for the year to June 30 after one of the worst years for the steel industry.
OneSteel shares rose 3 cents to close at $3.01 yesterday.
