North Star earnings jump on HRC rise

Flat-rolled producer North Star BlueScope expects higher metal spreads in the second half amid continued strong pricing after rising US hot-rolled coil (HRC) prices and "relatively constrained" raw materials costs propelled first-half earnings up by more than 40pc.

The Delta, Ohio, mill, a subsidiary of Australian steelmaker BlueScope, earned $240mn before interest, taxes, depreciation and amortization (Ebitda) in the first six months of the year, up from $168mn in the same period a year earlier. Earnings as a percentage of sales rose to 29pc from 25pc.

North Star's shipments were little changed at 1.1mn t as the EAF facility continues to operate at 100pc of capacity.

"Steelmaking conditions are very good [in the US]," BlueScope chief executive Mark Vassella said today, pinning rising prices to strong domestic demand and supportive US policy.

The US cut corporate and personal income taxes in 2018 before imposing a 25pc tariff on imported steel in March to boost domestic utilization rates.

North Star said it expects the benchmark spread in the US between HRC and a raw materials mix of #1 busheling and pig iron to increase by a further $90/t in the second half of the year after rising to $434/t in the first half from $324/t in the prior-year period. The spread surged by nearly $150/t through the first half of 2018 as HRC rose to around $1,000/t from the $600s, according to data from North Star. The margin is calculated using a one-month lag on spot HRC prices, a one-month lag on spot busheling and two-month lag on spot pig iron prices.

Still, Vassella said "we by no stretch consider the current spreads sustainable in the long term."

Shipments are expected to decline seasonally in the second half, while graphite electrode costs are expected to help push expenses up by around $10mn.

BlueScope is considering constructing a third EAF and a second slab caster at the mill that would boost its HRC capacity by 600,000-900,000t from its existing 2.1mn t/yr. The $500mn-700mn investment would take two to three years to develop if the company moves forward.

The company also sees potential to further debottleneck North Star's operations, taking capacity beyond 3mn t/yr as it looks at opportunities to expand its hot strip mill to meet the new capacity afforded by the third EAF and second caster.

Vassella said the proposed expansion comes "on the back of a privileged position this business has built in its market," dubbing North Star "the most cost-effective producer in the US steelmaking game."

Still, the mill's output accounts for a relatively small share of the US flat products market, which BlueScope estimates at more than 30mn t.

"[North Star's customers] will buy more steel off of us if we make more," Vassella said.

Stronger results from North Star helped boost BlueScope's overall profit for the 12-month fiscal year ended 30 June to AUS$1.6bn ($1.1bn) on revenue of $11.5bn, up from AUS$716mn on revenue of AUS$10.5bn a year earlier. This is its highest full-year result since 2005, the company said.