Asia expansion a key gameplay
Australia’s biggest steelmaker has the blueprint to make bold steps into the future, writes Derek Parker
B LUESCOPE, Australia’s largest steel maker, is on track to meet its goals set out over the past few years, but chief executive Paul O’Malley is very aware of the challenges facing the company in the near term. Late last year BlueScope released a blueprint for the company’s development, pointing to the need to develop international opportunities and improve competitiveness in Australia.
‘‘ The blueprint is designed to take us to the next level, transforming the company into a truly customer- focused organisation, with outstanding brands and a world- class asset base,’’ he said. ‘‘ It identifies more than 200 different initiatives to be delivered over the next three years, supported by the reorganisation of management accountabilities that was announced in 2007, changes to our reporting systems, and better use of internal assets.
‘‘ In fact, we are ahead of schedule to deliver the targeted $ A200 million reduction in working capital. It was originally scheduled for 30 June 2009, but about half of that benefit is expected to be realised by 30 June 2008.’’
A key part of the blueprint is expansion of the company’s activities in Asia, but the past year has not been easy for BlueScope in the region. In the six months to the end of 2007, BlueScope booked $ 251 million in asset impairments related primarily to its Chinese and Vietnamese metal coating operations, although performance in other Asian countries, especially Thailand, was better.
‘‘ Asia is a big part of the company’s future,’’ O’Malley said. ‘‘ Frankly, our mixed performance just doesn’t cut it. We have to deliver there, and the figures for the past quarter show significant improvements.’’
O’Malley points to BlueScope’s growing presence in the burgeoning market of India, where the company has a 50: 50 joint venture with the giant Tata Steel. The venture has established its first rollforming and preengineered building facility in Pune, to design and manufacture a range of Butler pre- engineered buildings and Lysaght steel building solutions.
India, like China, has a relatively low consumption of steel in construction,’’ O’Malley said. So there are tremendous growth opportunities. The Tata Steel/ BlueScope joint venture is an early mover in an attractive, growing market, which will allow us to use our innovation to match customer needs with steel solutions.’’
Another crucial area for the company’s global growth, North America, has yielded good results.
In North America, our expectations have been exceeded, especially due to the acquisition of IMSA Steel Corp, which was completed in February,’’ O’Malley said.
On the other side of the ledger, the strong Aussie dollar has been a challenge, and we expect that to continue. What we’re focused on now is how we compete with the Aussie dollar at parity with the US dollar. Another issue is the broad economic downturn in the US, and that makes the outlook for 2009 uncertain.’’
O’Malley believes that global steel prices will at least hold at around the present levels into next year, and perhaps rise in line with continued strong demand, notwithstanding substantial increases in iron ore, coal and scrap prices taking effect from mid- 2008.
The Australian market remains the company’s largest source of earnings, contributing $ 385 million in underlying earnings before interest and taxes in the six months to the end of 2007. But the profit was weaker than the first half of the previous year.
O’Malley emphasises that the company’s recent focus in the local sector has been more on market share than margins, to help fend off growing competition from imports.
Barring any unforeseen events, we’re on track for a stronger second half,’’ O’Malley said. Growth in the building and construction sector provides us with a important opportunities. For example, we will focus on residential framing, especially TrueCore steel, which is gaining popularity and is lifting steel usage in the Australian domestic building market. Steel penetration in the commercial building sector could also be higher in Australia, where the steel market channels are still relatively immature.’’
O’Malley points to a number of large investment projects either under way or in advanced planning stages, noting that the expenditure involved will affect the company’s balance sheet over the next few years but is essential for the longer term.
One investment project is the $ 370 million re- lining of the No 5 blast furnace at BlueScope’s Port Kembla steelworks, which will begin in March 2009 and will take about 100 days. The furnace currently produces approximately 2.6 million tonnes of hot metal per year.
The project will be a comprehensive overhaul of the facility,’’ O’Malley said. It will restore the blast furnace to peak operating condition and secure our ironmaking capacity for many years. Domestic external sales are not expected to be materially affected during the project, and we have contacted export customers who will be affected and they will make alternative arrangements during the reline period.’’
O’Malley also points to plans to upgrade the sinter plant in May 2009 for $ 134 million, and in New Zealand there are two projects in the feasibility stage that will capitalise on the company’s iron sand resources.
Another development at the Port Kembla steelworks is a proposed $ 1 billion cogeneration plant, currently in the feasibility planning stage. The plant will take byproduct gases that would otherwise be flared and use them to generate electricity that can be put back into the electricity grid — up to 120 megawatts of baseload electricity and up to 220MW if peaking capacity is added. By most estimates, the co- generation plant will save about 800,000 tonnes of greenhouse gas emissions from entering the atmosphere every year.
O’Malley sees the co- generation plant as a key part of the company’s strategy on the environment, which, he says, is receiving increasing attention from the management team and the board.
We are acutely conscious of the need to ensure our industry is sustainable,’’ he said.
The manufacture of steel consumes finite raw materials, and creates air and water emissions. The community rightly demands that steel producers are environmentally responsible and minimise their environmental footprint wherever it is feasible to do so.
I see it as very significant that the Port Kembla steelworks now uses tertiary treated water instead of fresh water. About 98 per cent of the water used by the steelworks is either salt water or recycled water.
At the same time, we have put in place a range of water conservation initiatives over the past decade which have reduced the amount of water used to make steel from 5,000 litres to 2,500 litres per tonne.’’
In Victoria, BlueScope’s Western Port plant at Hastings is developing a water recycling scheme which will cut its freshwater use by over 60 per cent, or 660 megalitres per year. The project, planned for completion in 2009, will see the partial upgrade of the Somers Treatment Plant and the installation of a new 13- kilometre pipeline to take recycled water to the Western Port plant.
Clearly, there are a lot of challenges ahead for the steel business, not just over environmental issues but over the global economic picture,’’ O’Malley said. Steel is an essential ingredient in today’s world, a material that we use every day. Global demand for steel is strong and we see this continuing. Overall, I think Bluescope is pretty well placed.’’