BlueScope rivals encroach on company’s profits

BlueScope

Inside BlueScope's North Star steel mill. Image: BlueScope

A number of US steelmakers are expanding capacity and upgrading mills in the same region where Australian company BlueScope Steel operates its highly profitable North Star mill.

According to BlueScope, its North Star mill in Ohio achieved a profit of $211 million in the first half of 2016-17, which accounted for 35 per cent of its overall profit. This is double the profit from the year prior.

With rivals getting wind of this, a number have announced expansions and upgrades of their Ohio plants, supported by new policies from US President Donald Trump designed to stimulate local manufacturing.

For example, Nucor recently announced its plan to spend US$85 million (AU$111 million) to upgrade a steel mill in Marion, Ohio, in order to keep a “cost-competitive position”. Charter Steel also announced its plan to build a new $150 million steel mill in Cuyahoga Heights in Ohio, and US Steel has stated its intention to spend up to US$200 million on steel mill expansions.

According to Deutsche Bank analyst Paul Young, producers are being incentivised to bring under-utilised capacity back into market as demand increases. Despite Trump’s protectionism policies and higher tariffs on imported steel, increased US steel mill utilisation is expected to limit profit margin expansion, said Young.