Shares in steelmaker, BlueScope (BSL) gave yesterday’s series of announcements a big tick yesterday by jumping more than 10%.
The shares closed at $4.50 after BSL announced it had struck a deal with the NSW government that will keep steelmaking going in Port Kembla, south of Sydney, upgraded its first half earnings estimate, and revealed it would buy its US partner out of its important North American rolled steel coil.
The flow of news followed an earlier agreement reached with unions at Port Kembla for $200 million in cost cuts and operating changes, including the loss of 500 jobs – management salaries have been frozen as well.
As a result the outlook seems rosier for BlueScope which had been warning of shutting Port Kembla if cost savings deals could not be reached. That would have placed in danger more than 5,000 jobs in the Port Kembla-Illawarra region of southern NSW.
BlueScope said its unions, the NSW government and other stakeholders had all pitched in to help find what it called “game-changing” cost cuts needed to keep the plant open.
About to retire BlueScope chairman Graham Kraehe said the board intends to keep Port Kembla open subject to the ratification of new enterprise bargaining agreements with BlueScope’s unions.
“We applaud the contribution by our employees, site management and the combined unions in helping to secure $60 million per annum in labour cost savings,” Mr Kraehe said in a statement yesterday.
"We also thank the NSW government for deferring $60 million of payroll of payroll tax payments over the next three years, as well as reductions in other charges."
BSL 1Y – Bluescope to keep Port Kembla open
BlueScope also announced plans to buy the 50% stake commodities giant Cargill’s owns in the North Star steel plant in the United States for $US720 million.
BlueScope said it had exercised its right of last refusal on the stake, matching an offer for an unnamed third party bidder.
BlueScope will now move to 100% ownership of North Star.
Ohio-based North Star produces 2 million tonnes of hot rolled coil a year and employs 380 people. But a global glut of steel had sent prices plunging as exporters in China have flooded global markets – China’s steel exports will top 110 million tonnes and more by the end of this year, based on current monthly volumes.
China produces around 46% of global steel, but demand is running well short of that, meaning exports have soared in the past year, damaging BlueScope in Australia and making life tougher throughout Asia and the US.
BlueScope also upgraded its earnings guidance yesterday.
It now expects about 40% growth in underlying earnings before interest and tax in the six months ended December this year, from the second half of fiscal 2015.
That is about $50 million greater than in its previous outlook due to earlier-than-planned cost savings in the company’s Australian Steel Products division (which includes the huge plant at Westernport near Melbourne), stronger domestic demand, and the impacts of the weaker Australian dollar.
You’d have to say shares jumped more for the upgrade than the decisions about North Star Steel or Port Kembla.
