Rising costs give steel giant the blues

BLUESCOPE Steel still expects its first-half earnings to be lower than they were in the second half of the past financial year because of rising costs, outgoing head Paul O’Malley says.

Energy prices remain a major issue for the manufacturer, he says, with electricity and gas costs soaring.

Speaking at BlueScope’s annual meeting in Melbourne yesterday, Mr O’Malley said Australia would only be able to remain competitive if it focused on baseload energy as well as “future initiatives”.

BlueScope, Australia’s biggest steelmaking business, in August offered a cloudy outlook as it flagged a hit to earnings in its first half.

The company said underlying earnings – a profit tally that strips out one-off items – in the six months to December would be about 80 per cent of earnings in the second half of the past financial year, covering the six months to June.

At the time, it attributed the deterioration to factors including higher scrap prices in the US, lower steel margins in the domestic market and escalating energy costs.

Mr O’Malley told shareholders yesterday there had been “some movement in the macroeconomic indicators since then”.

But that was not expected “to have a material impact on financial performance in the first half ”, he said.

Mr O’Malley said Bluescope’s electricity costs would 15 13 11 9 7 Oct ’16 have nearly doubled over the two years to June 2018, while gas costs would have increased by a third over the same period to $32 million.

While he applauded the federal government’s intervention in the gas market this year, he called for a 10-year en- Oct ’17 ergy transition policy that addressed concerns over prices and reliability.

“Debating future coal or gas, hydro, nuclear or renewable energy supply, is fine – so long as there is a sensible transition over the next 10 years that secures our everyday life and living,” Mr O’Malley said. The country would be able to retain its economic competitiveness only if it also focused on fundamental baseload energy that powered homes, factories, schools and hospitals, he said.

Mr O’Malley’s comments came as peak lobby group the Business Council of Australia yesterday demanded a permanent seat at the table when alternatives to a clean energy target were considered.

BlueScope shares closed down 0.26 per cent yesterday at $11.49.