March 6, 2024

Steel Market Summary - Australia

To The Biggest Go The Spoils

In January, the Australian Federal Government announced BlueScope Steel would receive $136.8 million of taxpayers´ money to help with its ongoing business: specifically, the reline of its No. 6 blast furnace. In mid-February, BlueScope Steel announced a net profit after tax of $439 million for the first half of the fiscal year 2024. Speaking to the result, managing director and CEO, Mark Vassella said: “We’ve seen real volatility across the global economy, particularly prevalent in the steel sector. Despite this, I’m pleased to report BlueScope has again delivered a strong result, with an underlying EBIT (earnings before interest and tax) of $718 million for the half year.” Mr Vassella also advised that operating cash flow for the half year, after capital expenditure, had come in at $255 million, which lead to a $614 million net cash position at the end of the half. In the company´s announcement to the Australian Stock Exchange, BlueScope said $306 million was returned to shareholders as part of its ongoing objective to distribute at least 50% of free cash flow in the form of consistent dividends and on-market buy-backs. The BlueScope Board had thus approved a fully franked interim dividend of 25.0 cents per share and an increase to


the share buy-back program, to allow up to $400 million to be bought over the next 12 months.

“The first half saw real progress on a range of key projects,” Mr Vassella said. “In the US, the ongoing ramp-up of North Star is nearing full run-rate, and the recycling business is performing well. In Australia, we have commenced the No.6 blast furnace reline, building our bridge to a low carbon future, and construction for the new metal coating line (MCL7) in western Sydney is on track. And at Glenbrook, south of Auckland, we’ve begun works to install the $300 million electric arc furnace (EAF), securing a bright future for steelmaking at New Zealand Steel.” Notwithstanding, the New Zealand result for the first half of 2024 was an underlying EBIT of $26 million, down 68% on the second half of FY2023. In Australia, Mr Vassella said domestic demand had been solid, delivering an underlying EBIT of $258 million, down 2% on the second half of FY2023. In conclusion, BlueScope said it expected its underlying EBIT in the second half of FY2024 to be in the range of $620 million to $690 million. The lower end of this earnings forecast would represent a 14% drop on the first half earnings.

ASN´s view is that profit and prosperity are normal and noble capitalist ideals. However, how is it that one part of our domestic steel industry can report such pleasing results, while many other parts of the same industry – especially the smaller businesses, who don´t get offered any government funding – have gone broke in the past 12 months? Surely it´s not just mismanagement on the part of the small business owners.

Now that 2024 has really kicked into gear, we can see that global steel prices are softening slightly on the back of a fall in the price of raw materials and sluggish steel demand in some regions of the world. ASN´s unique Steel Feedstock Index stood at 577 at the start of this year but has now dropped 10% to 515. The Index doesn´t show the actual cost of buying steel in the Australian marketplace, but it does show the month-to-month change in the combined price of the ingredients proportionally used in the making of steel via the blast furnace (BOF) method. A glance at our steel raw materials graph will show that iron ore was fetching $141 per m/t in January but now only sells for $113. That said, the Australian domestic steel market hasn´t moved much in the last six months. However, there is a whisper that building developers are re-entering the market, especially for residential apartments. If true, it follows a 1% drop during January in the total number of dwellings approved, according to the Australian Bureau of Statistics. Within that figure, approvals for detached houses fell 9.9% in January – at a time when Australia´s population growth far outstrips housing approvals. It seems a supply fix for the housing shortage is not imminent.

In the hierarchical structure of things, GFG Alliance is a collection of global businesses owned by British billionaire Sanjeev Gupta and his family. GFG Alliance owns Liberty Steel Australia, which also received a January hand-out of $63.2 million from the Albanese government. The South Australian Government has also committed $50 million towards Liberty´s ongoing business. InfraBuild is a subsidiary of Liberty Steel Australia. In late February, GFG Alliance signed an agreement with the South Australian Government to explore opportunities for the supply of hydrogen from its 250MW electrolyser in Whyalla to support the transformation to green iron and steel. GFG Alliance´s executive chairman, Sanjeev Gupta, said, “This step is vital in our plans to produce premium green iron and steel in Whyalla, and a huge boost to Australia’s determination to lead the world in decarbonisation.” GFG also entered into a memorandum of understanding with global energy company Santos for potential long term natural gas supply to its Whyalla operations.