Steelmaker OneSteel expects conditions for the Australian steel industry to remain challenging.
“In Australian steel, we are currently not seeing any improvement in overall activity levels or demand, with increased international economic uncertainty weighing on confidence levels,” OneSteel chairman Peter Smedley told shareholders at the company’s annual general meeting in Sydney on Monday.
“We are expecting conditions to remain challenging for these businesses over the remainder of the financial year.”
In August, OneSteel announced a labour and cost reduction program and a review of its Australian steel business, following a disappointing and unacceptable performance in the 2011 financial year.
Mr Smedley said the company was making good progress in the cost reduction program and in reviews of the business.
OneSteel’s Australian steel business had been severely affected by weak domestic and international steel markets and by the significant rise in the value of the Australian dollar.
Mr Smedley said the company was in the process of divesting some assets outside the core Australian steel business.
He said the Australian steel businesses remained “very important” to the company, even as the company diversified into other areas.
Mr Smedley said OneSteel was confident that demand and the pricing environment in Australian steel would improve as the Australian economy improved.
International steel demand and pricing was expected to become stronger as the outlook for economic growth in developed economies improved.
“Looking forward, we believe the fundamentals for strong demand from China remain sound, and we have been encouraged with the recovery in iron ore prices from their recent lows over the last few weeks,” Mr Smedley said.
While OneSteel focused on improving the returns of the Australian steel businesses, it was important that the government did not make the sector internationally uncompetitive through its policy decisions.
In relation to the government’s proposed new mining tax, Mr Smedley said there was not sufficient certainty around the outcomes of the tax to provide guidance on its financial impact on OneSteel.
Mr Smedley said there was nothing before the OneSteel board that would prompt the company to consider raising further debt or equity, or which gave the company concern over its borrowing covenants.
Mr Smedley noted that earlier this month in an earnings update OneSteel had said that first half earnings would be adversely affected by the recent severe fall in iron ore prices and the rapid rise in the Australian dollar.
“We indicated that net profit after tax (excluding transaction costs and stamp duty in relation to the acquisition of WPG Resources iron ore assets) would be in the range of $55 million to $75 million,” Mr Smedley said on Monday.
Shares in OneSteel fell 3.5 cents, or 3.6 per cent, to close at 93 cents.
