The decision this week by the Reserve Bank of Australia (RBA) to keep interest rates on hold at 4.35% was predicated on inflation still being too high and thus stopping the economy from functioning properly. With GDP stuck at 0.2% over each of the last three quarters to June this year, the RBA believes the economy is in an inflation-induced hole: and that tight monetary policy is still required. BlueScope Steel provides an example of how businesses are having to adjust their expectations in this subdued environment. In late October, BlueScope announced it now expects underlying earnings before interest and tax (EBIT) for the first half of the 2025 financial year (1H FY2025), thus the remainder of calendar 2024, to be in the range of $270 million to $310 million. This is about 25% below the prior guidance range of $350 million to $420 million. BlueScope’s Managing Director and CEO, Mark Vassella said, “The revised outlook highlights the challenging operating conditions not only facing BlueScope, but the broader global steel industry. These challenges include the continued softness in East Asian spreads off the back of record levels of Chinese steel exports, ongoing cost inflation and a period of pause and

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uncertainty in the United States pending the outcome of the elections and the timing of further rate cuts.”

Specifically, BlueScope said although it´s expecting domestic demand in Australia to remain stable compared to the first half of this year, it now anticipates delivering an EBIT in 1H FY2025 at around two thirds of that achieved in 2H FY2024. In New Zealand, the company said the domestic economy had not materially recovered from recessionary conditions, resulting in a soft demand and pricing environment. The New Zealand and Pacific Islands segment is now expected to deliver a result in line with 2H FY2024. BlueScope´s North American activities are now likely to deliver slightly below half of that achieved in 2H FY2024. At its North Star operations, a result below one third of that delivered in 2H FY2024 is now expected. Performance in BlueScope´s China business has been impacted by the softening domestic Chinese economy, the statement said. BlueScope Steel will host its 2024 AGM on 19 November at 10.00am in Wollongong and online.

To win the Melbourne Cup, as Knight´s Choice did on Tuesday, a horse needs plenty of stamina and lots of luck. When Sanjeev Gupta rode into town in 2017 as the new owner of the Whyalla steelworks, he was viewed by the industry as a white knight, the saviour of Australian steelmaking. Seven years later, Mr Gupta is in a bucket of trouble – and so too is Whyalla. Mr Gupta´s main physical problem in Australia is the blast furnace in Whyalla which has been off-line since mid-September. Financially, Mr Gupta says the enterprise is loss-making at present and has cost him $1.3 billion since he bought it. In August, 48 people at the steelworks lost their jobs; and reports have been growing of contractors and suppliers not being paid until heavy pressure is brought to bear. Such was the concern of the South Australian government during September that it sought advice on its options, should the steelworks or its Australian parent company, Liberty Primary Metals Australia, go into administration.

Overseas, the situation is no better for GFG Alliance, the parent company of Mr Gupta´s global business empire. GFG Alliance is a conglomerate of interests which are privately owned by the Gupta family and run by Sanjeev Gupta. The company´s troubles began after the collapse in 2021 of its main financier, Greensill Capital, run by the Australian Lex Greensill. Credit Suisse, which is now part of UBS, continues to pursue GFG Alliance for US$1.3 billion (AUD $2 billion) in debts. Meanwhile, for the past three years the United Kingdom´s Serious Fraud Office has been investigating GFG Alliance for suspected fraud related to its dealings with Greensill Capital. The company denies any wrong-doing. Concurrently, the UK’s corporate registry is pursuing Mr Gupta for allegedly failing to file audited tax returns for 76 of his companies listed in Britain. Meanwhile, as steel mills owned by Mr Gupta in the Czech Republic and Poland face bankruptcy proceedings, his steel plants in Belgium, Romania, Italy and Luxembourg have reduced production due to market conditions. GFG Alliance has also confirmed that “unviable” parts of its operations in Wales and England have been idled. Another steelworks in Scotland is only being run intermittently. 

In a wide-ranging interview in late October with ABC television, Mr Gupta said: “Different parts of the world have different stress in the steel industry, and Europe is the worst, and hence has got the worst problems, and we’re handling them, and we’re tackling them … but it’s not impacting our Australian business in any way shape or form.”

That claim is not supported by confidential documents which The Australian Financial Review says it has seen showing that the GFG Alliance subsidiary, InfraBuild, does not expect $56 million in debts to the Liberty Czestochowa Spolka plant in Poland to be repaid. The same document, said by the AFR to have been circulated among InfraBuild´s financiers, allegedly shows InfraBuild has also loaned Liberty Steel USA almost $37 million. This comes at a time when the AFR says the confidential documents show InfraBuild slumped to an $18.6 million loss in the 12 months ended June 30, compared with a $239.6 million profit last year.

The South Australian Premier, Peter Malinauskas, has indicated that a taxpayer-funded rescue of the Whyalla steelworks is doubtful. “What we don’t want to see is the state or federal government to be handing over taxpayers’ money for it not to be invested locally,” he said. Mr Gupta was recently in Australia attempting to raise more debt to finance his embattled steelworks. Speaking to the ABC, he said it was not in his nature to give up and that he would carry on in pursuit of making Whyalla a profitable, world-leading, green steel manufacturer. Last week, after sacking Liberty Primary Metals Australia´s managing director, Tony Swiericzuk, Mr Gupta said there would be no more job losses at Whyalla. As for the key element – the blast furnace – he offered: “I don’t want to give you a specific date but what I can tell you is that it’ll be running in days or weeks, not months.”

On the home bend in the Melbourne Cup, Knight´s Choice was near the tail of the field and running like the 80-to-1 outsider that he was. Then, through perseverance and lots of luck, he surged through the field to win. Mr Gupta might do the same. But would you put your money on it?