The high dollar and indifferent demand in the US and other offshore markets continues to make trading tough for steel maker BlueScope Steel.
The company said in its 2010 annual report issued yesterday that it is experiencing a number of headwinds in the first quarter, including lower demand and a strong Australian dollar.
"Currently, we are seeing a continued, although patchy, worldwide economic recovery and strength in most of the Asian economies in which we operate," chairman Graham Kraehe said in the annual report.
In commentary in the annual report the company said that in the three months ended September 30 there was a "significant spread contraction", where export steel prices fell by more than $US100 per tonne while raw material costs rose.
The company said demand was softer as customers, particularly distributors, buy less during periods of price pessimism.
On top of this there was continued demand weakness in the US, as well as "an ongoing drag" due to the strong Australian dollar.
North America was BlueScope’s most challenging market in 2009/10 amid continued weakness in the US non-residential construction market, but the company was poised to deliver improved results when market conditions turned around.
However, export steel prices in the Australian region for second quarter delivery had modestly improved and it is expecting significantly improved global market conditions over the medium to long term, BlueScope said.
"We are seeing a modest real-time increase in export steel prices in our region for second quarter delivery," it said.
The company noted that it expected a strong first-half performance from its Asian businesses.
"We expect to see continued strong performance from our Asian businesses and the ongoing benefit of permanent cost reductions over the course of FY2011," managing director Paul O’Malley said.
"Our aim is to increase the market penetration of our products, to capitalise on improving market conditions, and grow our presence in the building and construction markets."
Mr O’Malley said the company expected its key Asian businesses would continue to perform strongly this financial year.
BlueScope’s Asian business was a highlight in the financial year ended June 30, with record profits in China, Indonesia, Malaysia and Vietnam in part due to major cost reductions.
"Over the next few years, the assets we have today and the new metal coating line, which will commence operation in Indonesia next year, provide increased earnings potential in Asia."
He said several planned product developments would strengthen BlueScope’s market offer in Asia.
The company said that looking further into the next year or so the company is "planning for significantly improved market conditions over the medium to long term, despite short term concerns.
"Over the last couple of years we have strengthened the balance sheet and improved the effectiveness of the global BlueScope operations, both in terms of reduced cost base and improved productivity.
"The strategic imperative now is to increase market penetration in our footprint to enable our company to profitably capitalise on improving market conditions and grow our presence in global building and construction markets," the company said.
BlueScope shares eased one cent to $2.23 yesterday.
