Building lull softens NZ Steel result

Bill Jacob

A quieter home building market has drawn some of the heat out of BlueScope subsidiary New Zealand Steel.

The operator of the Glenbrook steel mill, south of Auckland, saw operating profits for the six months to December fall A$27 million to A$66 million ($73 million) as domestic steel appetite waned and export volumes were reduced.

As one of the country's largest power consumers, high coal and electricity costs did not help. New Zealand Steel president Bill Jacob said neither did the strength of the dollar and lower market prices for its non-steel products such as scrap.

Although the result paled in comparison to last year's impressive performance, when full-year net profit soared $138 million to $200 million - almost more than the previous five years combined, he said New Zealand Steel was "still having a pretty good year".

The result reflected a company in growth mode with big projects on the go and a "more appropriate" market.

He said aside from the residential market, the outlook was positive for the rest of the year.

The company was still contributing just over 20 per cent to the bottom line of Australian parent BlueScope - which disclosed a 38 per cent drop in interim net profit to A$312 million this week - and Jacob expected the percentage to grow by the end of the year.

BlueScope expected rising iron ore costs and falling global steel prices to continue into the second half as excess steel production from China was flooding Asian markets and driving down prices.

In the world market, New Zealand Steel was "playing okay", said Jacob, and export volumes remained strong.

"But clearly we're watching the Asian prices and are in the same boat as BlueScope as far as that's concerned."

The challenge was to improve consistency in the plant's reliability and to take full advantage of its markets.

A $125 million project to expand the mill's primary steel-making operations was in the pre-feasibility stage.

"That gets us through the first tollgate to really start investigating the costs and returns," said Jacob.

Approval will then be sought from BlueScope in October.

The result included a small contribution from Lysaght Pacific's three steel rolling operations in Fiji and New Caledonia.

New Zealand Steel is the country's sole producer of flat rolled steel products for the building, manufacturing and agricultural industries.

Glenbrook produces 650,000 tonnes of raw steel a year from West Coast black iron sand and exports 50 per cent of that amount to Australia, the Pacific Islands as well as the United States.