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BlueScope on track for H1 earnings jump

AAP logoAAP 10/11/2016 Prashant Mehra

Australia's largest steelmaking business, BlueScope Steel, has reaffirmed a strong growth in its earnings despite rising input costs, as better despatch volumes and productivity gains boost the company's bottom line.

BlueScope said it is on track to report a 50 per cent jump in underlying earnings for the first half of the financial year.

It expects its underlying earnings before interest and tax to be at least $510 million in the six months to December, up from $340 million a year earlier.

"Nonetheless, the board is well aware that global steel remains in oversupply," chairman John Bevan told BlueScope's annual general meeting in Melbourne on Thursday.

"We must continue our relentless focus on cost competitiveness in the face of this oversupply, input price pressures and market volatility."

Last year, the steelmaker had been poised to shut down operations at its flagship Port Kembla steelworks in NSW as steel prices slumped.

However it posted a sharp turnaround through job cuts, pay freezes and a three-year tax break from the NSW government.

BlueScop more than doubled full year profit in FY16, with underlying earnings jumping 90 per cent to $571 million.

On Thursday, managing director Paul O'Malley told shareholders the company is seeing strong despatches at its Australian business, while cost reductions have also been greater than expected, helping offset the impact of rising coal prices.

Prices for coking coal - a key ingredient in steelmaking, have more than doubled since June on the back of supply cuts in Asia.

BlueScope has also benefited through higher margins at the North Star business in the U.S., Mr O'Malley said. BlueScope acquired the remaining 50 per cent stake in the steel business from partner Cargill in October 2015.

Earlier, Mr Bevan told shareholders the complany will continue to focus on paying down debt as part of a long term plan to ride out the volatility in the steel sector.

"The short-term survival mode has largely passed, and unlike many others in the steel sector, the board has renewed confidence and focus on the medium to long term," he said.

The company plans to be cost competitive and to differentiate its premium branded products in order to overcome the enormous odds that it faces in the global market, he said.

BlueScope shares, which have nearly doubled this year, rose further on Thursday after the company reaffirmed its guidance.

In a market also buoyed by hopes of economic resurgence under US President-elect Donald Trump, BlueScope shares were up 93 cents, or 12.6 per cent, at $8.33 each at 1530 AEDT.

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