Mining and Heavy Industries

BlueScope latest to warn of energy ‘catastrophe’

BlueScope boss Paul O’Malley has credited cost improvements and sales growth with a $159 million profit increase in the first half of FY17, but has warned of an impending energy crisis which could cost Australian industry.

O’Malley spoke with the ABC this week to join the ranks of high-profile, energy-consuming executives worried about the nation’s energy supply.

“The fastest escalating cost that we have in our business today is rising energy prices,” he said.

“Both with gas affordability, and the fact that if there is a stoppage in energy supply and we have a blast furnace freeze – which is what was seen at Whyalla in South Australia, and Portland with the aluminium smelter – one can see hundreds of millions of dollars of costs being incurred by a business.”

His comments echoed those of Newcastle Tomago aluminium smelter boss Matt Howell, who last week said the smelter – which uses around 12% of NSW’s energy supply – was seriously threatened by the risk of energy outages and price hikes.

The energy sector has been under the microscope for some time after a series of major blackouts in South Australia.

Renewables have copped much of the blame from several key politicians, including the PM.

Many believe gas is the key resource for Australia to handle its energy transition, but gas producers in Australia have a more appealing international export opportunity, which in turn pushes up gas prices for domestic buyers.

O’Malley says it’s too much stress for major energy consumers like BlueScope.

“We absolutely need a baseload energy target while we manage the transition to a lower emissions economy,” he said.

“That is absolutely essential for industry to be able to continue to perform and operate.

“If there is a substantial reduction in baseload capacity in any part of the market, then industry will suffer.

“And we also need energy to be affordable.”

“There has been no conversation about that issue hitting Australia’s competitiveness, and the cost to consumers.

“If we do not have coal, then we must have gas. If there is no gas in Australia, then we have no baseload energy. How we ensure we have gas baseload energy that is environmentally friendly is the key question.

“If there’s gas in Australia and we say it can go overseas and we don’t have any baseload generation, I think we’re going to have an energy catastrophe in Australia.”

O’Malley’s dramatic assessment came on a good day for his company.

BlueScope announced a $359.1 million net profit after tax for the first half of FY17, up $159.0 million year-on-year.

Underlying earnings before interest and tax were calculated at $603.6 million for the period, up 162%.

“We are now seeing the benefits of our strategic initiatives through to the bottom line,” O’Malley told the ASX.

“There are positive trading conditions across most of our businesses and BlueScope has been generating strong cash flow.”

Along with cost improvements and sales growth, the managing director and chief executive also credited improved steel spreads and the benefit of the North Star acquisition for the results.

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