BlueScope earnings increase in first half of 2021 fiscal year

BlueScope Steel Ltd., headquartered in Australia, has released its half-year financial results for the six months ended Dec. 31, 2020, which marks the first half of its 2021 fiscal year.

In the investor presentation that accompanied the results, the company notes that its results for the half show the strength of its business model and financial discipline.

BlueScope reports underlying earnings before interest and taxes (EBIT) totaled AU$531 million, or roughly $420 million, an increase of AU$228 million (approximately $180 million) from EBIT in the first half of its 2020 fiscal year.

In a news release accompanying its earnings results, Managing Director and CEO Mark Vassella says, “All operating segments have performed well across the half. We have seen strong volumes and improving steel spreads in our largest steelmaking business in Australia and the U.S. Australian Steel Products’ domestic dispatches were the highest in a decade, driven by a resurgent residential construction sector.”

As a flat steel products producer, BlueScope says it is well-positioned to address emerging trends that include the rise in residential construction, the shifting preference toward lower density and regional residential housing, growth in steel-intensive e-commerce infrastructure, government infrastructure spending that is increasing as a form of fiscal stimulus and the preference for private road travel driving automotive growth.

Underlying EBIT for the company’s Australian Steel Products segment increased 103 percent from the first half of 2020 to AU$259 million ($205 million), while its U.S.-based North Star steel segment saw its EBIT decline 39 percent to AU$70 million ($55 million). EBIT increased 87 percent from the first half of its 2020 fiscal year to AU$150 million ($119 million) in the first half of 2021 for its Building Products Asia and North America segment. BlueScope’s Buildings North America segment saw EBIT grow 189 percent year over year to AU$71 million ($56.2 million), while its New Zealand and Pacific Islands segment grew by 345 percent year over year to reach AU$57 million ($45.1 million).

The company says the expansion of its North Star electric arc furnace (EAF) steel mill in Delta, Ohio, remains on track after having been delayed earlier in the pandemic, with commissioning planned to begin June 2022 with an 18-month ramp-up to its full run rate. The minimill is being expanded to produce an additional 850,000 metric tons of steel annually. It currently produces 2.1 million metric tons of steel per year.

Regarding the project, BlueScope says it is “highly value-accretive,” with the melt shop and tunnel furnace buildings targeted for completion the second half of its 2021 fiscal year. The company adds that workforce recruitment is ramping up.

BlueScope adds in its presentation that consolidation and rationalization has continued in the U.S. steel industry, noting the purchase of Big River Steel by U.S. Steel and Cleveland-Cliff’s purchase of AK Steel’s and ArcelorMittal US’ blast furnace operations, “supporting an improved industry structure.”

The company says it has a diverse portfolio of emissions reductions programs underway through 2030 at its major steelmaking sites in an effort to decarbonize its steel production.

Vassella says, “We recognize that the future of iron and steelmaking will need to be centered around breakthrough technologies—once proven and scalable. Exciting work is being undertaken around the globe to explore breakthrough ‘green steel’ ironmaking technologies—including using hydrogen and electrolysis. These technologies are currently in early stages of technology readiness with significant advances expected to occur over the next decade. For success, such initiatives will need international collaboration across the industry value chain, supportive public policy and affordable, renewable and reliable energy.

“In the shorter term,” he continues, “the steel sector will need to rely on technology performance improvements within conventional routes, increased use of renewable energy and other abatement measures.

“We are currently considering a diverse portfolio of projects, including optimizing raw material mixes, capturing and reusing a greater proportion of waste heat and gases and potentially replacing a proportion of the coal currently used in the process with alternative reductants such as biomass or hydrogen-containing gas such as coke ovens gas. Increased rates of scrap usage, and greater use of renewable energy to cut Scope 2 emissions, are also being considered. BlueScope expects to make further announcements about these plans during this calendar year—together with updated climate scenario analysis and a long-term carbon emission reduction plan.”

BlueScope says it is considering options for the future configuration of the Port Kembla Steelworks in New South Wales once the No. 5 Blast Furnace comes to the end of its current operating campaign, sometime between 2026 to 2030. The company says a reline is likely to be the most technically feasible and economically attractive option while longer-term low-emission technologies are developed.

Vassella says, “Emerging ‘green steel’ technologies, whilst promising, are not yet ready for large-scale implementation in the time frames required. In addition, alternative established lower carbon technologies such as EAF steelmaking are not economically viable for large scale flat steel production in Australia at this time given Australia’s high cost of energy and due to insufficient availability of cost-effective, quality scrap steel to support 3 million [metric tons] of flat steel production at Port Kembla.”

Looking toward the second half of its 2021 fiscal year, BlueScope says it expects stronger results for its North Star segment compared with the first half of its fiscal year. The company says it anticipates higher benchmark spreads partly offset by the unfavorable impact of realized selling prices and a marginally unfavorable impact of lower volumes because of a planned outage. The company also expects better results for its Australian Steel Products segment in the second half of its 2021 fiscal year with expectations of similar to slightly higher domestic dispatches on ongoing robust construction demand, stronger benchmark spreads, higher scrap and coating metal costs and higher coke contribution on realized margins.

BlueScope adds that as of the start of its 2021 second half, “Spot steel spreads in North America are materially higher than both 1H FY2021 and longer term averages. However, it is uncertain whether these conditions will be sustained throughout the half due to volatile macroeconomic and market factors—including potential impacts from COVID-19, which could disrupt demand, supply chains and operations.” Therefore, the company says it expects underlying EBIT in the second half of its 2021 fiscal year to range from AU$750 million to AU$830 million ($593 million to $657 million).