Investors dumped stock in BlueScope Steel Ltd. Monday on concern that a deluge of cheap imported metal was about to swamp Australia's only remaining publicly traded steelmaker.
The shares fell the most in six years, dropping as much as 23 percent after Chief Executive Officer Paul O'Malley said BlueScope's domestic unit, which accounts for about half of Ebit, was being hit by a "flood of very cheap product." The country needed to tighten up its anti-dumping regime, he told a media call following first-half results.
BlueScope's victim act is certainly compelling -- but for steelmakers struggling with a brutally competitive market elsewhere in the world, it may feel hard to swallow.
After all, the company's 10 percent Ebit margin in the year through June is the highest among steelmakers in developed markets, after Japan's Maruichi Steel Tube Ltd. and Mexico's Ternium SA. The median among 58 firms with sales of greater than $1 billion was just 3 percent.
That performance isn't surprising, given the hold BlueScope has on its home market. Since sole domestic rival Arrium Ltd. entered administration last November, it's had an almost unprecedented grip. O'Malley's import flood may be on the horizon but has failed to show up yet: The value of the country's iron and steel imports in the 12 months through June was the lowest for the comparable period since 2004.
A better explanation for investors' fright is probably skepticism about the performance of BlueScope as a whole. Life certainly isn't easy for an Australian steelmaker: For starters, the country's success in exporting the raw materials of iron ore and coking coal simultaneously drives up costs for domestic producers. BlueScope's Port Kembla works has been operating since 1928, so despite years of restructuring it's ill-placed to compete with newer facilities elsewhere in the region.
As a result, the business has lived from hand to mouth for years, getting by on state and federal government support. O'Malley has worked to raise BlueScope's exposure to other markets -- as with the company's 2015 decision to buy Cargill Inc. out of their North American venture -- but at best, it's been enough to only stanch the losses from Port Kembla.
The picture isn't getting any better. Australia's carmaking industry, a major source of demand, will close its last plants later this year. The purchase of Arrium's main assets last month by the Gupta family -- who are also hoping to revive most of Tata Steel Ltd.'s U.K. business -- raises the dread prospect of real competition again.
The woes of BlueScope's main rival and improved profitability in steel markets as a whole have given it a brief, surprising moment in the sun. At A$11.02 ($8.73) each, the shares are well down from the seven-year high they reached last month, but remain above the A$7.40 at which they stood before Donald Trump's election as U.S. president raised the prospects of a more protectionist steel market globally.
The delays to a planned U.S. report that could lead to new steel tariffs and the departure last week of Trump's self-proclaimed economic nationalist adviser Steve Bannon mean such expectations need to be marked down.
BlueScope's fall looks less like an aberration than a return to reality.
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