Bluescope Steel’s (BSL) shares surged yesterday after the steelmaker sprang a surprise profit upgrade on the market.
The shares jumped 10% in early trading, but then settled back to be up around 7.3% at $6.28.
The company says it expects underlying earnings before interest and tax for the six months to June of about $270 million, a big increase on its previous estimate of $209 million given in February with the interim result.
That saw a surge in first half earnings to $230 million, so all up the company is looking at net underlying earnings of $500 million or more.
Bluescope says its North Star plant in the US has resumed production following a fire earlier in May.
“The stronger performance has been driven largely by earlier delivery of targeted cost reductions, higher steel and iron ore prices, better than anticipated Australian domestic steel dispatches and better than expected margins in the international business,” it said yesterday.
At the same time, Bluescope said operations at its US steel plant North Star has resumed following an explosion which disrupted production for a time, with the cost of the repairs put at $5 million, in line with earlier indications. It had estimated lost production at 35,000 tonnes of steel due to the incident.
The improving financial fortunes of Bluescope are in stark contrast to fellow steelmaker Arrium (ARI), which collapsed last month due to its heavy debt load of more than $4 billion and weak operating performance at its steel business in South Australia and the nearby iron ore mining and export operations.
The bottom line for the improvement is that the threat to close the Port Kembla steelmaking business, which brought job and cost cuts from workers there, plus a $60 million payroll tax concession from the NSW, has paid off in spades.
In October last year, Bluescope announced what it called a “game changer” agreement with its employees to cut 500 jobs and freeze wages for three years.
The agreement was a big part of the company’s $200 million cost-cutting target, along with the cut in payroll tax. The problems at Arrium (and for South Australia) were underlined by a report released yesterday which suggested that the state will lose more than $750 million and about 5,000 jobs if Arrium’s Whyalla steelworks and mining operations close, new research reveals.
The report, from Flinders University, estimated that nearly 4000 jobs or 40% of the workforce would go around Whyalla, and the state’s economy would decline by up to $530 million.
The university’s Industrial Transformation Institute director John Spoehr says for every three Arrium-related jobs lost, another would go in industries including retail, education and health.
Professor Spoehr said impact of the closure of the Arrium would dwarf the looming loss of car making in Adelaide and could push the state’s unemployment rate into double-digits.
