David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

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.

Metal Fatigue
BlueScope shares suffered their sharpest drop in six years after annual results Monday
Source: Bloomberg
Intraday times are displayed in ET.

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.

Rolling in It
BlueScope has some of the best profit margins among steelmakers globally
Source: Bloomberg, company reports
Note: Based on latest full-year Ebit margins. Companies shown are the top three by Ebit margin, plus all other steelmakers with more than $10B in trailing 12-month revenue.

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.

Poor Little Rich Kid
BlueScope's revenue share of the Australian steel market has never been stronger
Source: Bloomberg, Australian Bureau of Statistics, Gadfly calculations
Note: Arrium went into administration in April 2016.

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.

Danger Zone
Reported Ebit at BlueScope's core Australian business has rarely crept into positive territory
Source: Company reports

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.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. The company is headquartered in Luxembourg but derives the majority of its revenue from Mexico.

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David Fickling in Sydney at

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