Glenbrook viability to be assessed by Australian owners

The review by Bluescope includes New Zealand's only steel mill, at Glenbrook, and two iron sands export operations. Photo / Glenn Jeffrey

Australian steel products group Bluescope is to review its steelmaking operations in Australia and New Zealand, saying it needs "game-changing" savings in operating costs.

"The company is also reviewing the ongoing viability of steelmaking in Australia and New Zealand and comparing the existing business model with an alternative business model of importing quality hot rolled coil and billet substrate," Bluescope said in a statement to the ASX yesterday. "We need to ... address our competitiveness to sustain to a business that justifies reinvestment."

The review affects New Zealand's only steel mill, at Glenbrook, south of Auckland, but apparently not Pacific Steel, acquired by Bluescope from Fletcher Building in 2014.

Also under review are Bluescope's two iron sands export operations on the Waikato coast, at Waikato North Head and Taharoa, which supply iron ore for local production and export and lost A$31 million ($34 million) before interest and tax in the last financial year.

If the global price for iron were to remain around US$50 per tonne, cash outflows from iron sands mining could total A$20 million between the current and the 2017/18 financial year, the company warned. That assumes breakeven mining costs could be brought from the mid US$60s per tonne to the mid-US$50s per tonne in the current financial year.

"More than A$50 million in permanent savings in our New Zealand steelmaking activities" are being sought, Bluescope said in its earnings statement, which showed group net profit after tax up 9 per cent in the year to June 30, at A$134.1 million.

The underlying aim is to "deliver value from Australian and New Zealand steelmaking and iron sands through game-changing cost reductions or pursue alternative models".

Sales revenue for the year to June 30 in the New Zealand and Pacific Steel segment rose 12 per cent to A$972.1 million, but that was largely thanks to the addition of A$262.3 million of sales of "long products" steel made by Pacific Steel.

Reported earnings before interest and tax from New Zealand operations sank into the red with a loss of A$30.3 million, down from a A$73.6 million profit the previous year. That included an A$11 million accounting entry reflecting the reduced value of iron sands inventories.

The Pacific Steel acquisition remained "a valuable domestic business", the company said.

The Bluescope accounts also recognise $44 million in tax losses available to New Zealand Steel to offset against future income, but no further such losses will accrue "until a return to taxable profits can be demonstrated". BusinessDesk