Aussie economy ‘OK’ despite weaker housing: BlueScope

Marion Rae |

The boss of steelmaker Bluescope says he feels ok about the Australian economy despite a profit dip.
The boss of steelmaker Bluescope says he feels ok about the Australian economy despite a profit dip.

A slump in housing starts forms the foundation of a flat Australian outlook for BlueScope Steel but the industrial leader is upbeat about prospects in the United States.

Australia’s largest steel manufacturer reported a lower profit on Monday amid volatile global economic and industry conditions, in stark contrast to record profits of two years ago during a construction boom.

Shares in BlueScope fell 3.1 per cent or 71 cents to $22.14 in afternoon trade as the company warned of further weakness in steel prices out of Asia.

Housing starts for Australia’s biggest home builders fell to a decade low in 2023 as construction costs and interest rates rose, sparking insolvencies that further crippled building activity. 

“We’ve seen, obviously, some of the values come off as we’ve worked through the residential pipeline,” managing director Mark Vassella told an investor webcast.

“But I still feel okay about the Aussie economy.”

Housing approvals at the bottom of the historical range of 80,000 to 130,000 per annum for detached dwellings were fully expected, and would bounce back, Mr Vassella told analysts.

BlueScope steel
BlueScope has grown its market share of products such as Colorbond and Truecore steel frames. (Dean Lewins/AAP PHOTOS)

“If you think about the underlying housing shortages in Australia, the growth of population and migration, any stall or slowdown, we think, is temporary,” he said.

The company, which makes products used to build homes, sheds and fencing, reported a net profit of $439 million for the six months to December 31, down $160 million on a year earlier.

Growing market share in higher margin products such as Colorbond and Truecore steel frames have also compensated for some softening in demand.

“We’ve seen real volatility across the global economy, particularly prevalent in the steel sector,” Mr Vassella said.

Despite this, BlueScope has again delivered a “strong” result with progress on all key projects and a “robust” balance sheet for investing in future growth, he said.

Strong demand for steel is expected in the US for large-scale infrastructure, steel-intensive renewable energy systems and buildings linked to e-commerce.

Underlying earnings were $718 million, $133 million lower than the same period a year earlier. 

BlueScope steel
BlueScope plans a $1 billion reline of the Port Kembla blast furnace to prolong its working life. (Dean Lewins/AAP PHOTOS)

In the Australia division, underlying earnings were $258 million, down two per cent on the previous six months, on weakness in the final months of 2023.

Reflecting “unprecedented softness” in Asian steel prices, underlying earnings in the second half of 2023/24 were forecast to be in the range of $620 million to $690 million.

One of Australia’s biggest carbon emitters, BlueScope recently partnered with leading iron ore producers BHP and Rio Tinto on an electric smelter pilot project.

The company has also been handed $140 million by the federal government towards the $1 billion reline of the Port Kembla blast furnace to prolong its working life.

The company declared a fully franked interim dividend of 25 cents per share and increased the share buyback to $400 million over the next 12 months.

AAP