OneSteel Goes Global, Records Profit Fall

Geoff Plumber MD OneSteel

Mining and construction materials group OneSteel Limited is a different business from when it entered the iron ore business in 2005, and now represents a mining, mining consumables and steel business with a worldwide outlook, says Geoff Plumber, company Managing Director and CEO.

The declaration comes as the company has announced an underlying net profit after tax of $78 million for the six months ended 31 December last year – down from $133 million for the same period in 2010. This excludes a number of one off adjustments, including a write-down of $130 million for discontinued operations in relation to the company’s LiteSteel Technologies business and the sale of the Piping Systems business. After all such adjustments are considered, the company recorded a statutory net loss after tax of $74 million.

One bright spot was the mining consumables division, which manufactures mining and consumable related products such as grinding media, ropes and rail wheels. That division more than doubled its earnings before interest and tax (EBIT) when compared to the previous corresponding half to $65 million.

That result, however, was offset by continued challenges in the company’s steelmaking operations, which continue to be hit by weak selling conditions, the high Australian dollar and high raw material prices for manufacturing. The company reported a $75 million loss (EBIT) for the first half in steel manufacturing whilst its Australian distribution segment recorded a loss of $9 million.

“Our Australian Steel businesses continued to face the challenges of a generally weak market, leading to both our steel Manufacturing and Distribution businesses delivering disappointing EBIT losses that have had a considerable impact on the company’s half year results” Plumber says.

Elsewhere, profits in the OneSteel’s mining business (as distinct from its mining distribution business) fell 38% to $171 million as weak demand for iron ore impacted spot prices.

Plumber says the company’s profile has evolved over recent years, and that the board is seriously considering a name change.

“OneSteel is a very different business from when it decided to enter the export iron ore market through Project Magnet in 2005” he says.

“OneSteel is now a mining, mining consumables and steel business with an increasingly global orientation”.

Steelmaking in Trouble

The company’s ongoing difficulties in steelmaking come on top of a poor result for rival BlueScope Steel and underscore continued uncertainty about the future of steel manufacturing in Australia.

Yesterday, BlueScope recorded a $530 million net loss after tax and an underlying loss of $129 million. In August last year, BlueScope was forced to affirm its commitment to the Australian market after making the decision to quit its export business, shut down some operations and lay off around 1,000 workers.

OneSteel says that domestic demand for steel products remains well below pre-GFC levels and that outside the resources segment and government funded civil works, there has been no improvement in activity levels.  Going forward, the company says that thanks to growth in infrastructure and mining, its overall steel production volumes are expected to grow by 5 percent. Outside of these sectors, however, it expects weak demand to continue. That, combined with expected price and margin volatility thanks to international price fluctuations, currency fluctuations and input price uncertainty, mean the company is not able to provide any quantitative guidance about likely financial performance in its steelmaking operations going forward.

Following the sale of its Piping systems and related property investments, OneSteel says it is continuing to progress other selective steel business divestments and property sales.

By Andrew Heaton
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