Volumes Down As Recession Fears Rise
The so-called Super Cycle of economic activity initiated by governments around the world to stimulate their economies out of the Covid-19 downturn created a buoyant 2022 fiscal year. But since then the cycle has trended downward and the New Zealand economy is once again flirting with a recession. Indeed, a recent policy update by the Reserve Bank indicated that a recession is necessary to bring inflation down to its target. Evidence of the year-long economic slide can be seen in housing consents for July 2023 which were 25% down compared to July 2022. The total for all new homes consented in the year ended July 2023 was 14% down on the previous year. “Fewer new homes were consented in each month of 2023 so far, compared with the same month of both 2022 and 2021,” said Stats NZ´s construction and property statistics manager, Michael Heslop. The direct correlation between weaker housing starts and weaker steel volumes can be seen in the FY2023 annual results of some of New Zealand´s
key steel and construction companies, published in August.
Steel & Tube saw its FY2023 volumes come in 12% lower than FY2022, while its FY2023 net profit after tax was down 43.7% on the year before. Nevertheless, CEO Mark Malpass sees brighter times. “We are cautiously optimistic that 2023 represents the bottom of the cycle and although we don’t expect a fast recovery, we anticipate there will be some improvement from early 2024 (the second half our 2024 financial year),” he said. However, just in case there is a further softening in the market, Steel & Tube has significantly reduced its inventories and has eliminated its bank debt. “We are tightly controlling debtors and cashflow; and investing in the right inventory and services as we shift towards higher value products and services,” Mr Malpass added.
Meanwhile, although Vulcan Steel saw a 28% increase in revenue to $1,245 million upon its FY2022 return of $973 million, its adjusted net profit after tax fell 33% to $95 million from 2022´s $142 million. Revenue in the company´s steel segment dropped by 4.8% on the previous year, while sales volumes were down 14.6% on the 2022 figure. Notwithstanding, Vulcan´s CEO, Rhys Jones, predicts the company will weather the current economic storm and that aluminium will be a key contributor in the coming years. Across at Fletcher Building, where FY2023 revenue came in steady at $8,469 million, CEO Ross Taylor commented: “Despite softer residential markets in New Zealand and Australia, and the major New Zealand weather events in the second half, Group EBIT before significant items grew by 6% in FY2023 to $798 million.” Fletcher´s net profit after tax was $235 million, impacted by significant items charges of $301 million, related mainly to additional provisions of $255 million on the New Zealand International Convention Centre and Hobson Street Hotel project.
“Looking forward to FY2024, we expect some further tightening in our overall volumes and so our focus remains on strong customer performance, cost control and pricing disciplines across our businesses,” Mr Jones cautioned.
A layman´s summary of the results of the three companies and the assessments of their chiefs could be: we´re not out of the woods yet, and it might get a bit trickier before we reach the other side.
* This month´s New Zealand Steel News was authored by in-house by Australian Steel News