BlueScope Profit Dip ‘Sign of Things to Come’

Profits have declined by a hefty $1 billion for structural steel maker BlueScope, highlighting the difficulties facing the construction industry.

For the six months to December 31, 2022, sales from continuing operations at BlueScope, the owner of the largest steel production facility in Australia, declined 1 per cent to $9.3 billion. 

However, net profits after tax declined 64 per cent in the half year to $598.9 million, a decline of $1 billion on the same six-month period last year. 

Lower steel prices have impacted the business, compounded by higher raw material costs as a result of higher coal and coating metals costs, although iron ore costs declined in the period. 

“Underlying EBIT for the half year was robust at $851 million in the context of softening macroeconomic conditions relative to those observed across the 2022 financial year,” managing director and chief exective Mark Vassella said. 

“This result demonstrates the resilience of our diversified business model, as the strength in many of our downstream businesses and operations partly offset the impact of steel spreads softening from record levels.”

Development industry implications

BlueScope’s half-year results confirmed market concerns around headwinds in the construction segment, which led to a surge in construction insolvencies in 2022.

The decline in residential construction was impacted by “unfavourable weather and labour constraints” in the first half of its financial year, it said.

The manufacturer also suffered from general cost escalation, including higher freight costs.

In its Australian steel products business, it expects results to be around a third lower than the first half of the year, with similar domestic volumes and lower costs contrasted with lower contributions from downstream businesses and weaker realised prices. 

Underlying EBIT for the group for the second half of its financial year is expected to be between $480 million and $550 million, lower than the first half due to softer Asian and Midwest steel spreads. 

It was not all doom and gloom though as BlueScope highlighted areas of opportunity and revealed it was in a $606.1-million net cash position by the end of the period. 

Builders continued to work through the extended pipeline from the Government’s HomeBuilder stimulus program, BlueScope said, and it predicted growth in the ongoing trend towards regional living and redirected discretionary spend. 

▲ The global green revolution is driving demand for steel as a critical input for a clean energy future, BlueScope says.

Non-residential construction also declined but a strong approvals pipeline had supported underlying demand in this segment, BlueScope said. 

Roads, rail and social and institutional subsectors continue to be supported by government investment in health, education and defence projects, which are steel-intensive. 

The steel company said it was “well-positioned” for the favourable long-term outlook for steel, with a robust pipeline of public infrastructure and non-residential investment.

BlueScope highlighted opportunities in wind, solar and transmission infrastructure, as well as the digital economy, with distribution and data centres requiring steel-intensive builds. 

BlueScope also said it had benefitted from a recognition of the importance of domestic supply chains and domestic manufacturing capability, given macroeconomic volatility.