OneSteel starts saving

High dollar and weak demand sees OneSteel's profits drop by 11 percent with the steelmaker looking to save in distribution

August 17, 2011

OneSteel is bracing itself for distribution cost savings as its profits have plummeted by 11 percent on year to $230 million due to the strong Australian dollar.

The poor results will see the axing of 400 employees and contactors in hope to save the company $40 million in labour.

The Australia steelmaker’s Managing Director and CEO Geoff Plummer says the company’s performance reflects the level of strength in the markets of its different businesses.

Continued weak domestic demand, higher raw material prices, under-utilisation in international steel markets and the impact on domestic prices all played a role in its underperformance, he adds.

"Internationally, higher raw material costs pushed up international steel prices in the second and third quarters but the rapid appreciation in the Australian dollar meant that this was not reflected in domestic prices until around March/April," Plummer says.

The business picked itself up in the fourth quarter due to improved pricing but a rapid rise in the Australian dollar which hit above $1.10 saw a further price and margin drop, including deferral of sales in the manufacturing business.

"Both the Manufacturing and Australian Distribution businesses have commenced a further program of labour and other cost reductions to lower the businesses’ cost base in response to the continuing difficult market conditions.

"Reviews of our facilities product portfolio and cost base are continuing and further initiatives will be required given current economic conditions and our current unacceptable financial performance.

"With steelmaking utilisation levels still well below normal, we remain strongly leveraged to volume as well as price improvements and we will have an improved cost base due to our current cost reduction program and the expected improved operational performance from the blast furnace."

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