Article 5: Bluescope On Track for a stronger second half

Bluescope On Track For Stronger Second Half

Herald Sun Business homepage, May 12 2008

Australia's largest steel maker said today the company was on track to deliver net profit for the fourth quarter of fiscal 2008 of a "similar order of magnitude" to the first half result of $305 million.

"The strong earnings improvement in the second half has been driven by very strong global steel prices," BlueScope managing director and chief executive Paul O'Malley told analysts in a conference call.

BlueScope said the rising price of raw materials such as iron ore and coking coal and tightening supply was underpinning the higher prices for steel products.

"If steel prices hold then we'll have a good start to fiscal year 09," Mr O'Malley added.

The higher steel prices, however, are expected to put BlueScope's operations in Australia under some pressure, with an expected tightening of margins in the coated business, Mr O'Malley said.

Raw materials costs have risen significantly amid supply constraints for coking coal and increasing demand for iron ore.

Nippon Steel Corp, Japan's largest steel maker, agreed to pay BHP Billiton Ltd and Mitsubishi Corp three times more for coking coal this Japanese financial year after heavy rain in Queensland resulted in what one analyst described as a "supply apocalypse".

Meanwhile, Brazilian giant Vale, the world's largest producer of iron ore, has agreed with steelmakers to a price rise of between 65 per cent and 70 per cent for its ore in 2008.

Rio Tinto Ltd and rival BHP Billiton are yet to settle and are holding out for a freight premium to be factored into the settlement.

BlueScope has settled about 10 per cent of its iron ore supply contracts, with Mr O'Malley expecting "higher prices" to be achieved between Rio Tinto and BHP Billiton and Asian steel mills.

"If you take iron ore, coking coal, alloys and scrap it is probably a cost increase of over $1 billion, so that is a big challenge for us as a business to manage," Mr O'Malley said.

BlueScope said the strong Australian dollar continued to be a challenge for the company.

BlueScope shares dropped 16 cents to $10.84 by 1249 AEST.

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