China demand for steel cooling, says BlueScope

BlueScope Steel chief executive Paul O'Malley says the days of high growth in Chinese steel demand are over and builders are moving from China back to the United States.

 

"What we're seeing on the ground is a significant reduction in confidence domestically within China as it pertains to building and construction, which is where a lot of steel goes," Mr O'Malley said.

 

"Yes there is still growth but the hey day is over. It may well return, but at the moment the hey day is over."

 

BlueScope is one of Australia's biggest manufacturers. The steel giant operates in 17 countries and employs more than 16,000 people, including around 2500 in China. It is the biggest global supplier of engineered building solutions to industrial and commercial markets.

 

"I've been saying for a couple of years that I think China has reached peak steel intensity," Mr O'Malley said.

 

"As a global trend we are seeing customers that were building in China are now building in the United States. They are going back to the market that's got better growth, lower energy costs, and better opportunities."

 

His comments come as mining heavyweights BHP and Rio Tinto are racing to bring hundreds of millions of additional tonnes of iron ore - which is used in steel making - to market to feed Chinese construction.

The BlueScope boss believes China is going through a stabilisation process, saying the incentive for Chinese steel managers to incrementally increase production and employment has given way to a focus on cutting pollution and boosting profitability.

 

"We do have a lot of people who used to work in BHP Minerals in our business and their comment is: 'the miners will ultimately always over do it'. I think that's playing out," Mr O'Malley said.

 

"Australia may despatch more tonnes of iron ore but I think the absolute steel growth rate in China is going to slow dramatically."

 

While China is tipped to stall, the US is expected to go from strength to strength.

 

Mr O'Malley said the combination of cheap energy, flexible labour rules that allow rapid hiring and firing, and significantly improved budget positions at state level are fuelling growth in the world's biggest economy.

 

"You'd have to work really hard to stop the US growing at the moment. I don't think even the politicians can stuff it up to be frank," he said.

 

All of BlueScope's businesses in the US are improving and Mr O'Malley is continually hunting for ways to expand his North Star joint venture in Ohio in America's midwest.

 

In the last four years BlueScope has booked impairments totalling $1.6 billion on its Australian steel operations, closed one of its Port Kembla blast furnaces and pared about 2000 jobs to recover its cost base.

 

However, a resurgence in residential construction in Australia and a weaker Australian dollar are helping BlueScope.

 

From 2012-13 to 2013-14 BlueScope's Australian business went from a $30 million pre-tax loss to $60 million profit.

 

"Absolutely the dollar helped; absolutely domestic growth helped; and absolutely our cost reductions helped," Mr O'Malley said.

 

"I'd love the dollar to come down more. But 87¢ [US] is a lot better than 93¢ [US], and 93¢ [US] is a lot better than parity."

 

Mr O'Malley said it would take a number of years with a significantly lower dollar for Australian manufacturing to really recover.

 

"The challenge is that we were above parity for so long that there was some destruction of our underlying domestic manufacturing base," he said.

 

"We need three or four years of sustained lower exchange rates and we will get people to invest in businesses that previously went offshore."

                                                                                                                             
                                                                                                                               

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