BlueScope Says Profit May Be Better Than Expected By Thomas...

BlueScope Says Profit May Be Better Than Expected
By Thomas Kutty Abraham and Kartik Goyal
March 26 (Bloomberg) -- BlueScope Steel Ltd., Australia's largest steelmaker, expects profit this half to be better than it forecasted because of stronger global steel markets. The shares rose to an 18-month high.
``The January-to-June period is now going to be a little bit stronger than what we thought one month ago,'' Kirby Adams, chief executive officer of Melbourne-based BlueScope, said in an interview yesterday in New Delhi. Earnings this half would be weaker than the first, he said Feb. 26 after reporting a A$388 million ($307 million) profit.
Arcelor Mittal, the world's biggest steel producer, said last month it remained ``very positive'' for the steel market this year. BlueScope is raising export prices for its benchmark hot-rolled coil in May and June, said Adams, citing strong demand in main markets such as North America.
``The short term outlook for BlueScope is strong because of the buoyant hot-rolled steel prices,'' said Atul Lele, who helps manage $350 million at White Funds Management in Sydney. ``In the medium term, BlueScope looks fully priced as steel prices may decline on increased supplies,'' in the next six months, he said
The stock, which has gained 17 percent this year and is trading at 21 times earnings, rose 11 cents, or 1.1 percent, to A$10.06 on the Australian Stock Exchange at the 4:10 p.m. close Sydney time. It was the highest close since Sept. 27, 2005.
Idled Plants
``We have been progressively raising prices of most of our products,'' Adams said in an interview at a meeting of the International Iron and Steel Institute. BlueScope expects strong growth in steel demand to be sustained, driven by global economic growth and demand from manufacturers, he said.
Arcelor Mittal plans to increase prices in the U.S. and restart idled plants because of rising demand and lower inventories. Baoshan Iron & Steel Co., China's biggest steelmaker, will raise prices from April.
``If you look around the world, you'll see that, every major economic zone is growing,'' Adams said. ``This is in turn increasing the demand for steel worldwide and I think we are in a very interesting era for the steel industry that has many, many years to go, provided that the world economic growth continues.''
BlueScope produces hot-rolled steel coil, a benchmark product, which is processed to make pipes and tubes and is used in cars and buildings. It also paints, coats and processes steel, turning it into roofs, fences and walls. Customers include OneSteel Ltd., Australia's second-largest steelmaker, and General Motors Corp.
`Construction Demand'
Its hot-rolled products unit in Australia was its largest earnings contributor, accounting for 69 percent of its pretax earnings. Its North American hot-rolled products unit accounted for 18 percent as the second-largest contributor, according to the company.
``Our view on North America is that market there is improving. The residential market is slow but the non- residential construction market is very good,'' Adams said. ``The pricing environment in the U.S. is improving and we are optimistic about our American business.''
The company announced a 24 percent rise in first-half profit because of higher prices and record sales driven by construction demand at home and in the U.S. It forecast a ``significant'' gain in full-year profit.
Import Competition
Adams cited the strength in prices for May and June as a factor affecting second-half profit. ``Global steel markets are little bit better and we have better visibility as we sit here at the end of March than we did a month ago,'' he said.
BlueScope normally has a weaker second-half as winter slows demand in North America, and the pace of construction works ease in January in Australia, Adams said Feb. 26.
The company may increase coated and galvanized steel prices by at least $100 a ton over the next three months, he said. These prices haven't been finalized yet, and will depend on materials costs and import competition, company spokeswoman Sandi Harwood said today in Melbourne.
``We have been progressively raising prices of most of our products,'' Adams said. ``We've raised prices of hot-rolled coils, slabs and plates for the May, June period in the neighborhood of $20 to $40 a ton.'' The prices for hot-rolled coils, slabs and plates refer to export products, rather than domestic prices, Harwood said.
BlueScope expects its Indian venture with Tata Steel Ltd., which runs three steel-coating and painting plants, to begin generating profits next year, Adams said.
``The business in India is already generating revenues, but it's not contributing positively to the earnings,'' Adams said. ``We would expect that in 2008 calendar year the business would start contributing more positively.''
To contact the reporter for this story: Thomas Kutty Abraham in Mumbai at [email protected]
Last Updated: March 26, 2007 03:53 EDT