BlueScope's North Star eyes Ohio's bucks

Company News

by Glenn Dyer

BlueScope Steel (ASX:BSL) has surprised with an upgrade to June half earnings thanks to a much stronger performance from its North Star steel mill in the US state of Ohio.

The company says second half profit is now forecast to be 40% to 45% above the estimate given at February interim earnings release.

CEO Mark Vassella says the North Star steel mill is now making more money because of the extra capacity coming on stream from the about to be finished $1 billion, 850,000 tonne expansion, over the last three years.

Group underlying earnings before interest and tax are now expected to be between $700 million and $750 million, up from a previous range of $480 million to $550 million, in the six months ended June 30, the company said on Monday.

Mr Vassella said North Star’s EBIT for the June half was likely to be 50% higher than in the six months to December.

This week’s profit upgrade is radically different than the one given with the interim results on February 20 which saw the shares slump 10% on a warning that that industrial customers were starting to reduce orders in anticipation of tougher economic times.

North Star supplies hot rolled coal product from its electric arc furnaces for the whitegoods and car industry and weak volumes in the six months to December saw a sharp fall in earnings because of higher fixed costs.

That downturn seems to have reversed and steel demand and profit margins have strengthened, especially as demand from carmakers has risen with the ending of the shortage of key computer chips.

The improvement comes as activity across much of the US economy has struggled in recent months from the impact from the Fed’s rate rises and stretched demand for labour. Up to this month, activity surveys across US manufacturing have been showing lacklustre readings, with April surprising with a small improvement.

Mr Vassella said North Star benefited from a strengthening outlook in the steel industry and better prices.

“This has been driven by stronger than expected hot-rolled coil prices and spreads, including the benefit of higher spreads on the volume from the ongoing ramp up of the expansion,” he said.

As well, profit margins from its recently US expanded coated steel business have been better than expected. BlueScope spent half a billion dollars in early 2022 buying the second largest player in the coated steel business and has now got enough volume to be competitive on price to more potential buyers.

In Australia, where the company operates the Port Kembla steelworks south of Sydney, selling prices had strengthened even though volumes were likely to be broadly similar in the June half compared with the December half, BlueScope said in its update.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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