Australian steel producer BlueScope Steel may close its New Zealand steelmaking operations but is hopeful that a focus on local supply chains will support its steelmaking business in Australia and the US.
The firm, which today reported a 2018-19 fiscal year ending 30 June profit of A$96.5mn ($69.4mn), down from A$1.02bn a year earlier, has warned that its New Zealand operations, including its primary steelmaking operations at Glenbrook, may be closed unless it can strip A$30mn-50mn in costs each year out of the business.
Glenbrook, which produces 650,000 t/yr of slab and billet, makes steel from locally sourced iron sands and has been under threat of closure since a major restructure in 2015, which saw BlueScope's Australian operations cut operating costs by around A$300 mn/yr.
The Australian operations reported earnings before interest and tax (ebit) of A$305.1mn for the year to 30 June, down from A$535.4mn the previous year. The New Zealand operations made an ebit loss of A$5.8mn compared with a profit of A$80.6mn in the same comparison.
"To secure the future of steelmaking in New Zealand, we need it to be profitable at long-term steelmaking spreads," BlueScope chief executive Mark Vassella said. He blamed high power prices as a major drag on the operations' profitability. UK-Australian firm Rio Tinto last month said it will close its aluminium operations in New Zealand next year because of high energy costs.
The Australian operations also face high energy costs, but a focus on shorter supply chains and domestic manufacturing, as well as government funding for domestic construction during the Covid-19 economic slowdown, is increasing market opportunities. Canberra's Homebuilder package, which encourages domestic renovations, is expected to generate increased demand for BlueScope's steel products in January-June next year.
BlueScope was hit by higher iron ore prices in the year to 30 June, but is hopeful that these will ease as additional supply comes on stream from Brazil. The gains that it made from lower coking coal prices were offset by weaker prices from the sale of its coke products.
BlueScope's North American operations maintained profitability in the year to 30 June, driven by a strong performance from North Star, despite low steelmaking spreads and closures across the automotive manufacturing sector.
BlueScope declined to give an ebit outlook for 2021 because of the uncertainty related to Covid-19 but indicated that steel sales were stable in Australia and near full capacity in the US. It will give an update on trading conditions at its annual general meeting on 19 November.
