Australia BlueScope year profit rises 72 per cent

MELBOURNE - Australia's largest steel maker, BlueScope Steel Ltd, said its annual net profit jumped 72 per cent on higher steel prices but warned of soaring raw material costs, pushing its shares down more than 5 per cent.

China's surging demand for steel caused global prices to soar in the past year, but also drove up iron ore prices by 71 per cent and coking coal prices by 125 per cent.

"In the near-term we are unable to fully recover these cost imposts and therefore upstream margins at Port Kembla steelworks are under pressure," BlueScope chief executive Kirby Adams said in a statement.

BlueScope is expanding production of further processed steel products, particularly in Asia, as it moves to reduce its exposure to the volatile commodity end of the steel market.

Adams said improvements in that area were expected in 2006, and the company expected another strong year despite cost rises.

BlueScope's net profit increased to A$1.01 billion ($1.1 billion) for the year to June 30, up from A$584 million a year ago, in line with forecasts for about A$1.05 billion, according to a Reuters survey of seven analysts.

The company declared a final dividend of A24 cents per share and a special dividend of A20 cents per share.

Adams said raw material prices would raise costs by about A$380 million before tax in fiscal 2006 compared with 2005.

Analysts are forecasting this year's earnings will ease to A$762.3 million, according to Reuters Estimates.

BlueScope shares slid as much as 5.1 per cent to A$9.58, a two-week low, before regaining some ground to be down 4 per cent at A$9.69 after 30 minutes of trade. Bluescope shares have risen about 18 per cent so far in 2005, while the wider market has added 11 per cent.

The company's hot rolled products division, which manufactures basic steel products such as slab and hot rolled coil, was the driver of earnings growth in fiscal 2005.

Earnings before interest and tax from the division, which includes the Australian Port Kembla steel works and the North Star venture in the United States, more than doubled to A$1.338 billion as revenues climbed on higher global and domestic prices.

Japan export prices for hot rolled coil hit about US$640 ($930) a tonne in April, up from around US$500 a tonne in mid-2004. Prices were around US$600 a tonne in mid-August.

Earnings from the New Zealand and Pacific Steel Products division nearly tripled to A$183 million.

However, its Australian coated and building products unit slid to a loss of A$116 million from earnings of A$193 million due to higher steel costs and industrial action.

The division's products include steel coated with aluminium and zinc to resist corrosion and pre-painted for building use.

Earnings from the Asian coated and building products unit eased 21 per cent to A$82 million on cost rises and expansion expenses.

The company is spending more than A$600 million on plants in China, Vietnam, Thailand and India, with most due to start up in calendar 2006. A Thailand expansion will be completed this month.

Losses at its North American coated and building products units, which includes the US operations of the Butler steel building acquisition, widened to A$20 million from A$9 million.

- REUTERS