Union deal underpins NZ Steel's $50m savings drive

The company is restructuring both its Australian and New Zealand operations to combat the impact of low global steel prices. Photo / Getty Images

New Zealand Steel's blue collar workforce has agreed to forego annual bonus payments during unprofitable years to allow the Auckland-based unit of ASX-listed Bluescope Steel a fighting chance as it seeks A$50 million in annual savings.

The two year deal also sees the workforce take just a 1 percent pay increase over two years and was "a very good outcome" from a collaborative process, NZ Steel chief executive Andrew Garey told BusinessDesk.

"It (the new contract) wasn't due till next May" and the early resolution reflected a recognition that "the business was facing a pretty dire scenario."

Bluescope announced in August that earnings before interest and tax from New Zealand operations sank a loss of A$30.3 million in the year to June 30 from a A$73.6 million profit the previous year, and that the company was seeking "game-changing" restructuring in both its Australian and New Zealand operations to combat the impact of low global steel prices.

The Engineering, Printing and Manufacturing Union announced last week that it had reached a new employment contract that would "allow the company to focus on becoming sustainable and resilient for the future, protecting jobs and the steel-making industry in New Zealand," said EPMU organiser for NZ Steel, Joe Gallagher.

The two year deal "gives the company certainty about its costs and ensures good job security for the workers," he said. "It also helps NZ Steel achieve its goal of $50 million in sustainable savings."

The company is still seeking to cut as many as 100 jobs in both its blue and white collar workforces, which operate the Glenbrook steel mill, the Pacific Steel operation, bought from Fletcher Building last year, and ironsands exports. It is also renegotiating arrangements with suppliers and making improvements to its industrial processes to achieve efficiencies.

The company was targeting between $20 million and $25 million in savings from workforce changes, with the new collective agreement delivering around half that and further restructuring anticipated to deliver the other half, said Garey.

"I'm cautious not to get too far ahead of myself," he said, but the process of finding savings was advancing positively.

Among suppliers, NZ Steel was renegotiating its coal supply contracts with troubled state-owned coal miner, Solid Energy, which has been placed into voluntary administration for break-up over the next two years.

Going against the flow of savings was the impact of charging changes by the Auckland monopoly electricity network owner, Vector, which were expected to add around $500,000 a year to costs.

It is understood these costs relate to Vector "smearing" Auckland industrial users with additional charges to reflect the loss of custom from Contact Energy and Mighty River Power, both of which are closing power stations in Auckland.

"There's not much we can do about that, the way the electricity sector is structured in New Zealand," said Garey. "We will continue to have a discussion with Vector. It's a bit annoying."