Engineering, Mining and Heavy Industries

Energy costs stifle BlueScope

Shares in Australian steel manufacturer BlueScope have dropped almost 20% since it detailed the threats of rising energy costs and dumping from Asian rivals in its FY17 annual report on Monday.

BlueScope announced a doubling in full-year after tax profit to $716 million, off the back of an underlying EBIT of $1.1 billion, up 89% year-on-year.

But outgoing chief executive Paul O’Malley – who it was announced on Monday will be replaced next year by Australia & New Zealand head Mark Vassella – said energy costs were a major threat to the ongoing prosperity of BlueScope.

“A sharp increase in energy costs for our Australian operations risks undermining recent cost and productivity improvements,” O’Malley said.

“Combined gas and electricity costs for the company’s major manufacturing sites at Port Kembla, Springhill and Western Port are forecast to increase 75% between FY16 and FY18, to an estimated $145 million in FY18.”

O’Malley said the firm was “very concerned about tightening of supply” in both the gas and energy markets, having highlighted its concerns to government and regulators.

The company also highlighted the potential threat of unfair Asian competition in the Australian market, saying “as trade restrictions take hold in global markets, import product offerings are taking advantage of gaps in the Australian anti-dumping regime, which together with volatility in [foreign exchange rates], is leading to lower domestic steel margins”.

It also added lower margins for its US steel business as an ongoing concern.

Altogether, the market was not pleased with the annual report, despite the healthy profit figure.

Shares trading above the $14 mark prior to the announcement immediately dropped to around $11.50 after the report, where they have stabilised since.

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