OneSteel’s South Australian iron ore export business has once again helped the group cushion the impact of an uneven market here and offshore for steel.
First-half net profit before one-off items rose to $125 million in the six months to December 31, from $119 million a year earlier.
After tax profit for the period was $116 million, against $117 million in the first half of the 2010 financial year.
The shares fell 4.7%, or 14c, to $2.84. The fall accelerated in the afternoon.
OneSteel declared an unfranked interim dividend of 6c a share, up from 5c at the corresponding point last year.
The country’s second-largest steelmaker said yesterday that underlying first-half net profit rose 5% in the six months to December, helped by the continuing strong demand for iron ore from China.
Like so many exporters, the company said the strong Australian dollar cut earnings.
That echoes the comments from its bigger rival, BlueScope, which reported an interim loss of 5 million,
Like BlueScope, OneSteel is looking for an improvement in the steel market in the 4th quarter of the financial year.
It said yesterday that margins in its steel-making unit will remain under pressure early in the second half because of the delays between rising raw material costs and increased domestic prices.
But margins should improve in the fourth quarter as price increases take effect.
"There are encouraging signs that (steel) volumes have bottomed and that margins will improve in the fourth quarter as announced price increases take effect for a wide range of products and as volumes lift,’’ the company said.
There was little sign of any impact in the result from the $US932 million purchase of the grinding media and steel products business of global miner Anglo American last November. That purchase was completed on December 31.
Chief executive Geoff Plummer said in the statement the performance of the company’s Australian steel business had weakened in the half, as the rising Australian dollar added to the impact of weak demand.
But he said, “Our Iron Ore business was again the standout performer, with continued strong demand from China helping to deliver a record result for the half, while in steel manufacturing, our mining consumables businesses performed best".
In fact the financials for the steel business tell the story of OneSteel’s half year.
Overall earnings before interest and tax (EBIT) rose 8% to $215 million in the December half, and all that came from the iron ore export business.
OneSteel said yesterday the iron ore business saw a 41% jump in total revenue to $465 million for the half, which was "due to higher prices and relatively flat sales volumes at just over 3 million tonnes".
"Demand from China continued to be strong, further increasing spot prices for iron ore and keeping them high compared to historical levels, the company explained.
But earnings before interest and tax (EBIT) jumped a massive 144% to $276 million "due mainly to higher prices and lower freight rates," according to OneSteel.
The company’s recycling business lost $5 million (on an EBIT basis), the manufacturing (steelmaking) business incurred an EBIT loss of $73 million and distribution lost $10 million.
And even though the company sees some improvement in recycling, manufacturing and distribution, the prospects for the iron ore export business remain very solid.
"Iron ore sales volumes are on track to reach our target for the year of between 6.0 – 6.5 million tonnes, including approximately 2 million tonnes of medium grade ore," the company said yesterday.
"Extreme weather in December and January including flooding at the mine site has disrupted our mining and shipping schedule and we now expect sales for the year to be around the middle of this range."
So another half and full year where the iron ore export business keeps OneSteel in the black, unlike BlueScope, which is totally exposed to the surging prices of raw materials and has no offsetting cushion.
