Asia ex­pan­sion a key game­play

Aus­tralia’s big­gest steel­maker has the blue­print to make bold steps into the fu­ture, writes Derek Parker

The Weekend Australian - Review - - Steel -

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.’’

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.