OST Feels The Slump

Sydney, Nov 18, 2008 (ABN Newswire) - Shares in Australia's second steel group, OneSteel fell 8.3%, or 27c to $2.97 after the company's annual meeting was told the company was looking at possible second half production cuts and was cutting costs.

Rival BlueScope told its AGM last week a similar story, but its outlook is complicated by the reline of the Port Kembla Number 5 blast furnace in the second quarter of next year and upgrade to the associated sinter plant: moves that will cut production.

BSL said it was looking for a solid first half, but a lower second half as the global slowdown and the Port Kembla work take their toll. BSL shares fell more than 7.6% yesterday to $3.85. BSL's cuts will be made for it by the reline in the second half.

OneSteel is set to join a number of steel companies worldwide that have, or will, cut production as construction and manufacturing softens (led by the global leader, ArcelorMittal, which will cut production this quarter by up to 35%).

OST CEO, Geoff Plummer told the AGM that overall performance during the past four months had been "solid'' (like BSL), but that the company expected a challenging second half for 2008/09.

"Australia domestic conditions have held up reasonably well so far, but we are now starting to see some softening in demand due to a lack of credit availability and reduced confidence levels and activity in some markets,'' Mr Plummer told the company's annual general meeting on Monday.

OneSteel said it was implementing a number of initiatives including "adjusting production to reflect reduced demand'' in anticipation of a more challenging half.

The company has maintained its iron ore sales forecast of 5 million tonnes for the 2009 financial year "subject to market conditions'' and expects to achieve cost synergies of $60 million this year from the integration of the Smorgon Steel business.

"We expect international prices for steel and steelmaking inputs to remain volatile," the CEO said.

"Despite prices falling well below their peaks of a few months ago, we believe they are likely to be above historical standards over the medium to longer term,'' Mr Plummer said.

"To the end of October, our overall business performance has been solid and we have not seen a significant impact from the change in global conditions other than in our Materials segment. International prices for iron ore, scrap and steel have fallen significantly in recent months and this has had the most immediate impact in our Materials segment due to its level of exposure to international market conditions.

"In our recycling business, both prices and volumes have fallen substantially below where they were at the time of our August results announcement. In our iron ore business, weaker demand from China has resulted in iron ore prices also falling substantially.

"To date, we have been successful in maintaining our overall volume targets for iron ore sales, but there is some risk of achieving our target sales of 5 million tonnes for FY09 unless demand conditions recover in the second half.

"The Chinese government announced last week a massive stimulus package for its economy, which is encouraging for the prospect of improved demand for iron ore, however how quickly this occurs is uncertain at this time.

"We expect activity levels will be weaker for the remainder of this fiscal year, but don't expect to have a clearer picture on the extent of the weakness until there is greater clarity in the international and national response to the deterioration in global financial and economic conditions.

"Australian domestic conditions have held up reasonably well so far, but we are now starting to see some softening in demand due to a lack of credit availability, and reduced confidence levels and activity in some markets.

"In anticipation of what will be a more challenging second half, we are implementing a number of initiatives to ensure we are well placed to face the global challenges ahead, including increasing our focus on cash, working capital and cost control, as well as focusing on adjusting production to reflect reduced demand," Mr Plummer said.


 

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