Big cuts at Australian steel company

Australia's biggest steelmaker, BlueScope Steel, cut its 2006 earnings forecast and said it would slash jobs and shut two plants because of soaring prices for raw materials, sending its shares down as much as 5 per cent.

The company plans to close its loss-making tin mill in Port Kembla, south of Sydney, after a 19 per cent rise in iron ore prices effective from July 1, and its Taiwan manufacturing plant, and cut about 590 staff and management jobs across the group.

In its second profit warning this year, BlueScope said 2006 earnings per share would be at the bottom end of its forecast range of A65c to A75c, which would be 5.9 per cent below the average of analysts' forecasts, according to Reuters Estimates.

BlueScope owns New Zealand Steel which operates the Glenbrook steel mill south of Auckland.

BlueScope blamed significantly higher zinc prices, lower tinplate volumes and prices, and reduced earnings from its Asian operations for its earnings downgrade.

The one-off restructuring costs would be about A$150 million to A$200 million before tax, said BlueScope, which also has operations in the United States.

Chief executive Kirby Adams said the company was making tough decisions in volatile times and was responding swiftly to higher iron ore prices and a slump in demand for Australian tinplate.

"The announcements today are the flipside of Australia's exciting resources boom, where the negative effect of higher raw material prices really hits home," said Adams.

Two days earlier OneSteel, Australia's second-biggest steel maker, agreed to buy smaller rival Smorgon Steel for about A$1.6 billion ($1.96 billion), in the latest sign of industry consolidation.

France's Arcelor has also bowed to an improved bid from Mittal Steel to create the world's biggest steelmaker, three times larger than its nearest rival.

Ausbil Dexia fund manager Paul Xiradis said the big takeovers in Europe were about getting critical size to help lower costs.

"BlueScope might be trying to stave off any overtures, but then again they might be fashioning it so that they are more presentable to a suitor," said Stuart Smith, a senior client adviser at brokerage Bell Potter Securities.

Shares in BlueScope dropped 3.5 per cent, or 29c, to A$8.04.

Still, the stock has performed better than the benchmark S&P/ASX 200 index by about 10 per cent so far this calendar year.

BlueScope posted a 38 per cent fall in first-half profit in February on higher iron ore and coal costs, while a plant fire forced it to put more basic steel product into export markets under pressure from increased supply from China.

The company is investing heavily in new plants that will supply further processed products, such as painted steel coated with zinc and aluminium for corrosion resistance, as it aims to cut its exposure to the volatile commodity end of the market.

The Port Kembla plant is Australia's only tin mill.

"We can no longer carry loss-making businesses," said Adams.

- REUTERS