Shares in OneSteel plummeted to a 10-year low after a poor outlook for the only profitable part of its business – its iron ore mines – prompted it to revise down its entire earnings guidance.
OneSteel on Wednesday blamed recent falls of 30 per cent over three weeks in the iron ore price and the strong Australian dollar.
The company’s share price plunged 17.9 per cent to 98.5 cents, its lowest level since November, 2001.
It said net profit for the first half would be between $55 million and $75 million, compared with consensus full year earnings guidance currently at $310 million.
In August the steel-maker reported full year profit of $230 million, down 10.9 per cent on the previous financial year to June 30.
Analysts predicted the OneSteel announcement would prompt a flood of downgrades of earnings forecasts for the other Australian steel producers.
OneSteel and Bluescope Steel have struggled in recent years because of high iron ore prices, prompting OneSteel to buy several South Australian iron ore mines this year to hedge against that risk.
Pengana Capital fund manager Tim Schroeders said he expected similar announcements from larger iron ore producers and their share prices to soften as a result.
“If we don’t see things (iron ore prices) improve and bounce back in a hurry there’s going to be some fairly massive revisions in terms of estimates for this financial year,” he told AAP.
Iron ore prices have fallen as Chinese leaders hold back economic growth through credit tightening.
Mr Schroeders said iron ore margins were still healthy at current prices (close to $US130 a tonne).
He said the world’s biggest iron ore miners, Rio Tinto, BHP Billiton, Fortescue Metals and Brazil’s Vale had all embarked on massive expansions demonstrating their faith in the business.
IG Markets market analyst Cameron Peacock said most brokers used $US85-$US90 a tonne iron ore price targets in their assumptions.
“The iron ore companies are saying to everyone that everything they are digging and putting on ships they can sell,” he told AAP.
“This dip is just part of the cycle.”
Mr Schroders was less positive about OneSteel and Bluescope Steel’s prospects, suggesting Australia might only be able to support one major steel company.
“Both are pretty difficult businesses relying on government handouts in essence in terms of carbon tax relief to make ends meet,” he said.
OneSteel said it intended to provide an update on trading conditions at its annual general meeting on November 21.
