NZ Steel shows its mettle

Bill Jacob

When Bill Jacob arrived in the country two years ago, he told the taxi driver taking him from the airport to the Glenbrook steel mill: "I'm here to lead New Zealand Steel."

To which the driver said: "I thought they went out of business."

That was when NZ Steel's newly appointed president knew he had a long way to go to revive the company's fortunes.

And two years on Glenbrook - once told it was unlikely to be open beyond 2007 - is booming.

In August it revealed a $200 million operating profit, up $138 million on the previous year and almost more than its five previous years combined - contributing 20 per cent to its Australian owner BlueScope Steel's bottom line.

Productivity has increased 18 per cent since 2000, non-steel products now comprise one-third of revenue, and a capital budget of close to $70 million this year is a strong vote of confidence from BlueScope in its future.

BlueScope chief executive Kirby Adams said the strong turnaround at the mill had lifted the question mark over its future.

"NZ Steel had an outstanding year and there are still opportunities for this business to be the best in BlueScope Steel."

However, it was only seven years ago that Glenbrook's future was far from assured. NZ Steel was close to bankruptcy and had been struggling since the 1990s to prove it could operate at full capacity.

Earnings were being hit by depressed international steel prices, dwindling domestic demand and the high costs of New Zealand-built technology that sees it make steel from west coast black sand.

In the late 1990s its then owner BHP tightened the screws, telling it to slash $60 million from its annual costs and telling the mill's 1400 workers its days were numbered.

At best it might survive 10 years, BHP said.

Meanwhile, Jacob - a 28-year US steel industry veteran - was in his home town of Ohio, US, with little knowledge of Glenbrook's existence or its need for life-saving surgery.

But in March 2003 he left a position as executive vice-president of US logistics company ADS Logistics to take over from its retiring president Cyril Benjamin.

Despite the shadow hanging over its future, Jacob was confident the world steel market would improve and in the potential of the boutique-style mill that uses methods not used anywhere else in the world.

"I saw its capability and potential. It just needed someone to say - it can be done and this is how we're going to do it. And frankly, they didn't need much on how to do it. I just gave them a little push and they really went for it."

He credits "lucky markets" and the lift in world steel prices, which started when he arrived, as playing the greatest role in the turnaround.

"Benjamin had done a good job at getting operations in order and I put more emphasis on the market and I'd like to say we rode the wave and rode it very well."

Increased sales of ironsand to China has provided a revenue boost beyond the mills traditional steel-making activities.

Jacob also put a bigger focus on developing markets for previous "problem" steel-making byproducts such as vanadium slag and scrap metal which were not being optimised a few years ago.

When 10,000 tonnes of scrap were discovered buried underground Jacob said: "Dig 'er up and we're selling it."

The construction boom drove the upsurge in the domestic market last year, with annual demand for steel increasing from 200,000 tonnes five years ago to more than 300,000 tonnes. "It was fortunate that my timing was such that the markets improved and we had the benefit of getting it right, taking full advantage of it, then moving forward and turning attitudes around."

In May the company renegotiated a three-year contract with the Engineering, Printing and Manufacturing Union for the first time.

In the past, contracts have never exceeded two years, and Jacob saw this as a statement to BlueScope the mill wants the capital to keep coming.

This week he is seeking BlueScope's approval for a $125 million project to expand the mill's primary steel-making operations as part of a proposal to raise the annual capital budget to $100 million for the next seven years.

Recent office upgrades and new gardens and an emphasis on keeping things clean are all signs of his confidence in its future.

Jacob gets out for a weekly walk around the mill - the country's largest employment site - and has lunch with a staff member he does not know in the cafeteria.

The tall, cordial American likes a visible style of management, and knows most of the more than 1230 staff by face.

On the Friday the Herald visited the mill, staff had gathered to watch Jacob get his hair dyed steel blue to raise money for teen cancer charity Canteen.

He makes the 40-minute drive to Glenbrook from his Epsom home every day, but tries to get involved in the Waiuku community, where almost half his staff live, getting his hair cut locally and visiting the fish and chip shop on a Friday night.

"Everyone is happy right now and this town has not been happy for a few years," he said.

"Living the future" is the catchphrase he developed when he arrived.

"It means don't worry about your job so much any more, let's worry about how we can grow this place and about becoming world class."

Jacob puts a lot of the mill's darker years down to difficult markets.

"The additional challenge was the Government built a monstrosity that was bigger than its own market by double, and the technology that was developed here wasn't mastered."

For his part it has been a nice rescue, but it's one that has largely gone unnoticed in New Zealand.

Criticism for the large amounts of public money it has swallowed have been hard to shake.

It's expansion under the Muldoon Government's controversial Think Big scheme, finished five years late in 1988, cost nearly $3 billion and it was sold before any of the benefits flowed back.

Its bungled sale to the ill-fated Equiticorp in 1987 came back to haunt the Treasury a decade later when the High Court ordered the Government to pay the Equiticorp statutory managers $189 million because the Crown should have known the purchase was probably funded illegally.

More recent attention has focused on the mysterious disappearance of metals scientist Jim Donnelly from the site last June, and the accidental death of a worker in July.

But BlueScope was "very" interested in what was going on at Glenbrook, said Jacob. And the vote he's getting is the dollars.

Improving performance has been rewarded with a doubling of the capital expenditure budget in the last year.

In February a $14 million upgrade to the metal coating line was commissioned, and a $3 million paint line upgrade was completed.

Adams said there was still a big focus on achieving further improvements in slab making and hot rolling at the mill, and on maximising its potential markets.

"We all look forward to continued growth and I have great faith in Bill Jacob and the NZ Steel team to deliver on those expectations and maintain their rightful place as one of the strongly performing businesses in BlueScope's portfolio."

The strong dollar, rising global costs of freight, aluminium, paint and zinc are all barriers to its competitiveness.

Another challenge is greenhouse gas regulation.

The mill is one of the country's largest power consumers, but Jacob was confident it was well positioned for a negotiated greenhouse agreement with credits that will minimise its costs by December next year.

As Glenbrook's workforce got older, a further challenge would be to ensure it recruits and retains technical expertise for the future. Staff turnover is low, with the average worker aged 48 and length of service 14 years.

Jacob was confident there was a minimum of 25 years worth of direct land it could mine, and the abundance of black iron-rich black sand at its doorstep would become more valuable each year.

He was also excited about the opportunities future technologies would provide to make iron pellets from the sand, which could be sold to steel mills around the world. Steel-hungry China's appetite for ironsand would continue to grow at strong levels, with India close behind, he said.

Adams said BlueScope would get up to 10 per cent of its revenue from China this year, with its contribution to total revenue likely to double in the next "couple of years".

So far at Glenbrook things were tracking well for the current year, although not quite at last year's levels.

"We probably won't have years like last year every year, but I don't believe we'll have the peaks and troughs we've had in the past either."

BlueScope's ownership was a "very healthy situation" for NZ Steel.

"This is a business that has been neglected for a lot of years with dollars. BlueScope's recognised that and is helping us get it up to excellence."

Steeling for growth

* NZ Steel uses west coast black sand to produce 650,000 tonnes of raw steel a year.

* Exports - mainly to Australia, the Pacific Islands and the US - account for half its total production.

* World's only producer of steel from ironsand.

* Only domestic producer of flat steel products.

* Top five domestic customers: Fletcher Building, Steel & Tube, Metalcraft, Vulcan Steel, Versatile Buildings.

The operations

* Glenbrook: New Zealand's largest employment site. Iron and steel mill, hot and cold rolling mills, metal coating and paint line.

* Waikato North Head Mine:Concentrated ironsand slurry pumped 18km to Glenbrook.

* Taharoa Mine: Concentrated ironsand mined and shipped to Asia.

* Auckland: Structural beam plant and port facilities.

* Tauranga Wharf: Deep sea export facilities.

Turbulent times

1959: New Zealand Steel Investigating Company set up by the New Zealand Government to pioneer making steel from West Coast black sand.

1965: New Zealand Steel formed as a private company.

1986: New Zealand Government acquires an 81.2 per cent shareholding following a capital reconstruction.

1987: Government shareholding increases to 90 per cent after another capital reconstruction.

1987: Equiticorp pays Government $327 million for 80 per cent stake on the eve of the share market crash, and goes into receivership two weeks later.

1998: Bought by Helenus Corporation comprising Fisher & Paykel, Steel & Tube, ANZ Bank and Australia's BHP Steel.

1992: BHP gains an 81 per cent stake and renamed BHP New Zealand Steel.

1999: BHP says unless performance targets are met the mill will close by 2005.

2002: BHP Steel lists on the Australian Stock Exchange, and renames its New Zealand arm New Zealand Steel. Spins out its steel making operations as a separate Australian publicly listed company.

2003: BHP Steel renamed BlueScope Steel.