Australia's largest steelmaker, BlueScope, has warned its profits will be dented by softer US steel prices and slumping demand in the aftermath of the so-called "Trump bump" provided by the US President's protectionist trade tariffs last year.
Melbourne-based BlueScope, which runs steel mills in Australia and the US, warned investors on Tuesday that its profit growth for the 2019 financial year will be lower than forecast partly due to pressure on US steel spreads – the difference between the steel price and the cost of raw material.
BlueScope was considered a big winner from the US trade war with China after it secured a White House deal to exempt the 300,000 tonnes of Australian steel it ships to the US yearly from the country's import tariffs while also experiencing greater profitability at its US-based operations as the tariffs sent the price of its US-made steel soaring. President Donald Trump imposed the 25 per cent tariffs on steel and aluminium last year as part of a move to protect US industries from a flood of cheap metals, mainly from China.
BlueScope last year singled out the positive market conditions in North America when revealing the company's profits had doubled over the financial year to $1.5 billion, its best result in a decade, prompting chief executive Mark Vassella to declare it was a "good time to be a steelmaker in North America".
But the boost proved to be short-term. The price of steel in the US has since crashed back to levels before the tariffs were announced, as have steelmakers' stock prices. BlueScope shares have fallen nearly 40 per cent from a high of $18.83 in July to about $11 on Tuesday.
BlueScope said since it last updated the market the price of steel had dropped by $US150 per tonne from the previous year when it was only expecting a decline of $US130 per tonne. The company on Tuesday said its full-year earnings were approaching $1.35 billion – an increase of 6 per cent on the previous year, but lower than the forecast it previously provided of 10 per cent growth.
However, BlueScope also announced on Tuesday it would extend a $250 million share buy-back program by a further $250 million, with Mr Vassella saying the business was "continuing to generate strong cash flow".
"With the transformed business continuing to generate strong cash flow, we are able to pursue a mix of returns to shareholders and investing for future growth," he said.
Industry analysts and investors have expressed concern about the sliding US steel price, which has been partly attributed to the added pressure on steel customers in North America, including carmakers General Motors and Ford which struggled to absorb the sudden spike in costs last year.
But falling US steel spreads do not appear to have had any bearing on BlueScope's assessment of a $960 million expansion of its steel mill in the US state of Ohio, which the company said on Tuesday was "progressing well".
BlueScope said it had now begun "detailed design and engineering" as part of its evaluation of a proposed expansion to add up to 900,000 metric tonnes of steel-making capacity to its North Star mill, which employs about 400 people.
"The company will provide a further update when it releases its results for the year to June 2019," it said.
BlueScope warned that demand in Asia and South East Asia and North America has been "softer than anticipated" but said other businesses were performing "generally in-line with the expectations set out in the February guidance – with Australian Steel Products seeing stronger realised steel spreads offset by weaker than expected domestic volumes."
Following the market update on Tuesday, BlueScope shares were trading 1.8 per cent lower at $10.95 shortly after midday AEST.
Source: The Sydney Morning Herald