Sharechat Logo

NZ Steel earnings fall on weaker prices, higher costs

Monday 19th August 2019

Text too small?

BlueScope Steel’s New Zealand business reported a 28 percent drop full-year operating earnings due to higher input costs and a drop in prices for export steel and vanadium.

Sales revenue for the business, which includes BlueScope’s Pacific Island operations, increased to A$888.1 million for the 12 months to June 30, up 7 percent from a year earlier.

But earnings before interest and tax fell 28 percent to A$80.6 million. First-half earnings had been 75 percent higher at A$71.9 million, only to plunge to A$8.7 million in the second half.

BlueScope said the company, which operates the Glenbrook mill, benefited from strong local demand but faced lower export prices in the second half and a sharp fall in vanadium prices.

While the business made A$23 million more from vanadium in the full-year, the second-half contribution was down almost A$21 million from the first half, due to weaker prices. Export volumes were “broadly consistent.”

Glenbrook is the country’s only producer of steel which it makes by smelting local iron sands with local and imported coal. It uses vanadium for hardening steel but also sells vanadium slag from its smelting to offset its other production costs.

NZ Steel’s brands include Colorsteel, Axxis and Zincalume. It also operates the Pacific Steel reinforcing business it acquired from Fletcher Building in 2015. Last October it also acquired a 16 percent stake in listed distribution firm Steel & Tube to prevent a take-over by Fletcher Building.

NZ Steel also operates the North Head iron sands mine, having sold the more southerly export-focused Taharoa mine in 2016 as part of a string of initiatives to keep the New Zealand business profitable.

BlueScope noted that domestic New Zealand volumes had been strong, on the back of “buoyant” building and construction activity. The infrastructure segment remained “particularly strong due to ongoing government expenditure on roads, retaining walls and bridges.”

Glenbrook is among the country’s biggest users of power, gas and coal and suffered last year as repair work at the Pohokura gas field reduced gas supplies and pushed up electricity prices – particularly in October and November.

It tried to time maintenance shuts in the second-half to coincide with further repair work at Pohokura earlier this year.

An investor presentation today shows raw material costs at the New Zealand and Pacific business were about A$35 million higher than a year earlier. In the second half they were A$7.7 million more than the firm spent in the six months through December.

Conversion costs were about A$18.6 million higher in the full-year and almost A$34 million higher than in the first-half. Electricity prices “remained elevated,” the company noted.

Higher steel prices contributed about A$24 million to ebit in the full-year, but lower prices in the second half trimmed A$17 million from earnings.

Total volumes for the year fell 6.5 percent to 607,300 tonnes, with increased domestic sales partially offsetting a drop in export sales.

Domestic sales were 4 percent higher at 461,700 tonnes for the full-year and were also 4 percent higher in the second half. 

Export volumes fell 30 percent to 145,600 tonnes for the full-year but were down 40 percent in the second-half at 76,800 tonnes.

Melbourne-headquartered BlueScope has steel plants at Port Kembla in New South Wales, at Glenbrook south of Auckland and in Ohio. It operates more than 80 coating, roll-forming and painting plants in Australia, the US, Asia and the Pacific and includes Tata Steel, Nippon Steel and Sumitomo Metal Corp as joint venture partners in some geographies.

Australia’s biggest steelmaker reported a 9 percent increase in sales from continuing operations to A$12.5 billion, a 35 percent decline in net profit to A$1.02 billion and a 6 percent increase in underlying ebit to A$1.35 billion.

It also announced a US$700 million investment to increase the annual capacity of its North Star operation in the US by 850,000 tonnes. North Star was the only one of the group’s five operating divisions to post an increase in full-year operating earnings up 52 percent at A$655 million.


  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

RBNZ steps up BNZ supervision after capital calculation breaches
Beehive lobbied for revised StuffME deal
Ebos shares fall 9.5% as biggest shareholder sells at a discount
ComCom unmoved by warning on fibre investment in draft regime
BREAKING: Govt adds vital infrastructure to overseas investment test
Judges recommend changes to help Chinese litigants
Napier Port beats FY forecast; monitoring log export outlook
A2 shares surge on stronger margin outlook
A2 raises operating profit margin expectations
Arvida on track as first-half profit climbs 47%

IRG See IRG research reports