Energy warning as BlueScope review records profit double, cartel investigation

BlueScope CEO Paul O'Malley

Departing BlueScope Steel CEO Paul O’Malley has warned rising energy costs are threatening to undermine the manufacturer’s recent surge in the market.

In its latest financial review, the Sydney-based company recorded a $715.9 million net profit after tax in 2017 – a 102 per cent increase on the previous year.

O’Malley – who will be replaced in January next year by new CEO and managing director Mark Vassella – said the company had “many growth opportunities” ahead, including further expansion in the Asian market.

While demand for premium branded products continues to be strong in Australia, he also insisted, however, that a sharp increase in energy costs for BlueScope’s Australian operations “risks undermining recent cost and productivity improvements”.

In order to meet demand in the growing retail and SME building market in Thailand, a third metal coating line with in-line painting is also under construction at BlueScope.

Elsewhere, a new Lysaght roll-forming facility in Myanmar has been established and there are other opportunities to accelerate growth in India.

On the domestic front, combined gas and electricity costs for the company’s major manufacturing sites at Port Kembla, Springfield and Western Port are forecast to increase 75 per cent to an estimated $145m in the FY2018.

“The Australian steelmaking business has done an excellent job in boosting profitability and the business delivered good results, supporting the 2015 decision to continue operations at Port Kembla,” O’Malley said.

“However, we must not be complacent in our pursuit of continued productivity improvements. We need to deliver returns necessary to support a decision in 10 to 15 years to reline the blast furnace.”

“We are very concerned about tightening of supply in the gas and electricity markets and have highlighted concerns to government and regulators, including our views about the need for greater supply of gas to domestic customers and incentives to ensure base-load generation is maintained at least at existing levels.”

Over the last financial year, the Australian Competition and Consumer Commission (ACCC) has been investigating potential cartel conduct by BlueScope, relating to the supply of steel products in Australia.

The investigation looked at a small number of BlueScope employees during a period between late 2013 and mid 2014, according to the company director’s report for the financial year.

“BlueScope has co-operated, and continues to co-operate, with the ACCC’s investigation,” the report stated.

The latest review marks a new beginning at the manufacturer, which will see BlueScope’s current Australia and New Zealand CEO, Vassella, take over the reins.

“Mark has been a key part of the development of our strategy and, in Australia and New Zealand, has led our 8,000-strong workforce in manufacturing and distribution through a major restructure of the business,” company chairman John Bevan added.