BlueScope Posts Record Profits, North Star Benefits from Ballooning Spreads

“This is an impressive result. All operating segments performed exceptionally well – driven by strong demand and steel spreads,” BlueScope Managing Director and CEO Mark Vassella said in a statement on Monday, Aug. 16.

North Star BlueScope contributed to the solid showing. The Ohio mill reported earnings before interest and taxes (EBIT) of A$674.5 million ($495 million) in fiscal 2021, up 259% from EBIT of A$187.7 ($137.7 million) in fiscal 2020 on sales that rose 39% to A$2.38 billion ($1.75 billion) over the same period, according to data released with the parent company’s financial results.

The gains came despite shipments increasing only 2% to 2.30 million tons (2.08 million metric tonnes) year over year.

Sharply higher earnings and revenue at North Star BlueScope resulted primarily from record Midwest hot-rolled coil prices and ballooning spreads between raw material costs and finished steel selling prices.

Case in point: SMU’s hot-rolled coil price stood at $1,770 per ton ($88.50 per cwt) in late June 2021 – when BlueScope’s fiscal year ended. Busheling scrap, the primary raw material for an electric-arc furnace (EAF) flat-rolled steel mill like North Star BlueScope, was at $571.40 per ton ($640 per gross ton). The result: a metal spread of nearly $1,120 per ton.

In other words, spreads this summer were higher than finished steel prices in 2008, the last bull market bearing any resemblance to the current one, SMU’s interactive pricing tool indicates.

In 2020, in contrast, hot rolled coil prices were at $480 per ton in late June and busheling scrap prices were at $290 per ton – a spread of only $190 per ton, or barely enough to cover conversion costs of approximately $175-200 per ton.

North Star BlueScope ran at full capacity during its 2021 fiscal year – or July 1, 2020, to June 30, 2021 – with the only exception being scheduled maintenance outages in November 2020 and June 2021.

The Ohio mill sells approximately 90% of its output into the U.S. Midwest, with 50% going to the automotive sector, 35% to construction, 10% to manufacturing and industrial applications, and 5% to the agricultural sector.

Automotive demand boomed following the initial outbreak of the COVID-19 pandemic in the U.S., and construction spending also increased.

And BlueScope expects construction activity to continue to grow thanks to strong demand from the residential construction sector, increased demand for steel-intensive infrastructure (think warehouses and data centers) necessary for e-commerce, and because of anticipated government spending on more traditional infrastructure (think roads and bridges).

The company also expects to benefit from an expansion at the Ohio mill that will see it equipped with a third EAF and second caster. The expansion project is slated to increase the mill’s capacity by approximately one million tons per year.

But while BlueScope is adding a new EAF in Ohio, it has decided that switching from blast furnace production to the EAF route at its steel works in Port Kembla, Australia, is “not currently viable.” That’s because electricity costs in Australia are high. And the country also doesn’t have a big enough pool of prime scrap – material left over from industrial processes such as automotive stamping – to support an EAF.

Direct reduced iron (DRI) was also considered for Port Kembla. But that option was scuttled because of high natural gas costs on Australia’s east coast and because of a lack of “cost effective” DRI grade pellets, BlueScope said.

Port Kembla is approximately 60 miles south of Sydney.

By Michael Cowden, Michael@SteelMarketUpdate.com