Australia’s biggest steel maker Bluescope Steel says it can become profitable again after announcing it will cut 1000 jobs in the worst day in the company’s history.
Shares in the steel maker plunged 5.7 per cent to their lowest-ever at 74.5 cents, after reporting more than a $1 billion loss.
The company is now no longer an exporter of steel as a combination of record raw material costs, low steel prices, low domestic demand and a record high Australian dollar mean it can no longer compete.
Bluescope will shut down its number six blast furnace at Port Kembla, in the Illawarra region south of Sydney – therefore exiting steel exporting – and close its Western Port hot strip mill in southern Victoria.
The blast furnace closure will result in 800 job losses, while 200 jobs will be cut at Western Port.
An estimated 400 contracted workers would also be affected, along with suppliers.
“This is a once in a lifetime decision from my perspective, absolutely the biggest change in Bluescope’s history,” Bluescope’s chief executive Paul O’Malley told reporters in a teleconference on Monday.
“It’s not one that’s been easy but it’s the right decision from a business perspective.”
The company has reported a $1.054 billion net loss for the year to June 30, which compares to a $126 million profit in the previous corresponding period.
Macro-economic factors include global steel production being at an all-time high: 1.5 billion tonnes a year today, compared to 800 million tonnes in 2000 and China producing 700 million tonnes now, up from 100 million tonnes in 2000.
Bluescope is also paying more than $300 a tonne for coking coal and close to $200 a tonne for iron ore, compared to $20 a tonne for iron ore and $25 a tonne for coking coal in 2000.
“Steel is moving from being a developed world produced product, to a developing world produced product,” Mr O’Malley said, while saying Australia needed to focus on cost reductions to compete in Asia.
The job losses showed the “dark side” of the resource boom, said Australian Workers Union secretary Paul Howes, although no union action is planned.
Mr O’Malley insisted the decisions would return the company to profitability.
Bluescope would focus on supplying steel in Australia and making steel products in its overseas-based operations, including Colorbond steel and Zincalume steel.
“It’s a positive, because we continue to produce steel in Australia for Australian markets, we keep as many employees as possible in a job,” Mr O’Malley said.
He did not comment on whether he would consider a merger with OneSteel, Australia’s second-biggest steelmaker.
On Monday, OneSteel shored up its position in the booming iron ore industry by announcing an almost $600 million investment in iron ore, including buying new mines and expanding its export port facilities.
Melbourne Business School economist Mark Crosby said the situation was so urgent for the manufacturing industry – a far bigger employer than mining – that it might be time for government action to stem more job losses.
He said he thought the main problem forcing up the Australian currency was low interest rates in the United States.
“I think we ought to at least think about whether there are steps we can take to reduce the level of the exchange rate,” Associate Prof Crosby said.
“Maybe some of the carry trade money – moving money from low interest rate to higher interest rate countries – can be discouraged.”
