BlueScope’s Factories in China Back On Track
All four of steelmaker BlueScope Steel’s factories in China are back running at full speed after a temporary shutdown which suffered its worst in late February. This further indicates that China’s industrial production is returning towards normality. BlueScope Steel Limited currently employs 2000 staff in China across three sales office and four factories. Presently, the company’s factories in greater Shanghai, located in Xi’an and Tianjin have resumed operations where workers are back at work and machines are running at full capacity.
Meanwhile, one of its sales offices in Wuhan, the epicentre of the original coronavirus outbreak, remains shut. The coronavirus outbreak has turned China’s industrial output upside-down where output in February revealed the sharpest monthly decline in factory activity on record.
Morgan Stanley was of the view that BlueScope and Sims are two outstanding players which will stand to benefit in the future once the coronavirus panic has eased. Specifically, as both players are heavily exposed to commodities, it is therefore likely for both to provide the greatest offering in a rerating market. However, the timing of an appropriate entry point will be tough. BlueScope shares had plummeted close to 40 per cent since January 14 when its stock price was $16. The stock fell 3.7 per cent yesterday, closely aligned to the broader equity market sell-off.
In February, BlueScope Steel reported a 70 per cent drop in net profits after tax of close to $186 million, relative to that of 1H FY 2019. Additionally, underlying earnings before interest and tax were also adversely impacted, posting a $302.3 million dip due to a decline in commodity steel spreads previously flagged in August 2019. Nevertheless, the firm opted for a conservative outlook when it delivered flat guidance for its second half. Even as investors were disappointed, BlueScope’s balance sheet, backed by ongoing capital returns, remains robust.
More notably, BlueScope Steel intends to lower second half buyback to $100 million and foresees its operations in China to have zero earnings in the second half. This is because Asian business continues to face structural headwinds from competition. However, BlueScope Steel is relying on stronger Australian volumes due to the lower Aussie dollar as a result of macroeconomic conditions. 1H FY 2020 witnessed a favourable turnaround in domestic sales due to robust underlying demand compared to 2H FY2019, where premium painted product volumes caught up with broader sales.
Moving forward, BlueScope’s Managing Director intends to transit to the digital arena. By doing so, this is expected to cut tens of millions of dollars in costs from current production costs before benefits are yield. Specifically, Chief Strategy and Transformation Officer Andrew Garey is currently co-coordinating trials intended to improve the way the firm manufactures steel beyond automation, which have been rolled out from Sydney’s Port Kembla to Vietnam. Presently, the firm is considering digital upgrades within three focus areas, including supply chain, manufacturing, and finally incorporating customer service within the first two areas.
By Caroline Wong
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