BlueScope Steel has warned that the mining boom will not last forever and that struggling manufacturing companies will again be needed when it ends.
BlueScope Steel chief executive Paul O’Malley on Monday announced an almost ten-fold widening in the company’s net loss for its first half but said its restructuring program would lead to a return to underlying profitability by the end of the financial year.
The loss was $530 million for its first half to December 31 compared with its previous corresponding half when it was a $55 million loss.
“I think the policy question at a time where the benefits of the mining boom are not being seen by a lot of mainstream Australia should be a conversation about how do you prepare for the end of the mining boom because all mining booms do end,” Mr O’Malley said.
“I think there’s a confidence sometimes that this mining boom’s going to go on forever.
“When you’re in manufacturing it may not be the best thing for the economy in the long run.
“We don’t want to lose capable, skilled manufacturing businesses for want of ignoring them during what is the toughest time in their history.”
For BlueScope the effects of the mining boom and global economic turmoil have meant a high Australian dollar, low steel prices, high raw material costs and softer demand.
Mr O’Malley’s comments came after the struggling steel maker last year decided to can its export business, with the loss of more than 1000 jobs and posted a $1 billion-plus full year loss for 2010-11.
The cost of doing business in Australia, including energy, labour and carbon costs needed to be kept low, Mr O’Malley said on Monday, due to cheaper import competition.
Falls in coking coal and iron ore prices late last year were a warning sign the boom may not go on forever, he said.
Mr O’Malley said much of the loss reported on Monday was related to one-off restructuring costs associated with the closure of some operations, leaving an underling net loss of $129 million.
An estimated $400 million to $500 million of capital would now be released for other uses the company was no longer being exposed to the loss-making export market, Mr O’Malley said.
Outside Australia, BlueScope posted what it termed reasonable earnings and was now focused on expanding its steel, coated building products businesses in China and North America, along with an iron sands mine that will triple in size in the next two years.
“We’ve effectively stemmed those losses (in exporting) and expect to have a profitable run rate in our business towards the middle of this calendar year,” Mr O’Malley said.
Market analysts were more pessimistic about the company’s fortunes, saying that BlueScope’s structural problems were not going away, along with the carbon tax and high Australian dollar.
“These cost cutting measures are only sustainable to a certain point,” optionsXpress analyst Ben Le Brun said.
“There is not a lot of fat it can trim off the business, moving forward.”
A drop of only two per cent in revenue to $4.53 billion was good new considering the circumstances, said City Index chief market analyst Peter Esho.
“The inability to convert sales into profit is where the local steel producers are being hit,” he said.
BlueScope did not pay an interim dividend.
Its shares closed down one cent at 36.5 cents compared with $1.95 a year ago.
