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Onesteel (ASX:OST) |
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WIKI ANALYSIS
Onesteel (Australian Securities Exchange: OST) is an Australian manufacturer and distributor of steel and finished steel products. The company operates iron mines and supplies steel-making raw materials to steel mills in Australia. The company operates in five segments. The Iron Ore segment supplies pelletized iron to steel mills.[1] The Recycling segment supplies steel making raw materials to steel mills operated in Australia and internationally.[1] OneSteel’s Manufacturing segment combines the activities of steel production and the product mills.[1] OneSteel’s Australian Distribution segment provides a range of steel and metal products.[1] The New Zealand Distribution segment comprises the 50.3% shareholding in Steel & Tube Holdings Limited, a steel distribution company based in New Zealand.[1]
OneSteel continues to be impacted by the manufacturing downturn caused by the global financial crisis. In addition, the company faces impending legislation that will increase taxes on miners in Australia which may harm OneSteel's top line performance.
Business Growth
In 2010, OneSteel's revenue decreased 14% to $6.2 billion, and its net profit after tax increased 12% on the previous year.[2] OneSteel's drop in revenue mainly reflects lower steel prices in the Australian Distribution and Manufacturing segments related to the global financial crisis. However, the sales margin for the year increased slightly to 6.7% from 6.4% in the prior year due to improved performances in the Iron Ore and Recycling segments, partly offset by weaker margins in the Manufacturing, Australian Distribution and New Zealand Distribution segments.[2]
OneSteel has largely recovered from the manufacturing downturn caused by the global financial crisis. The company's earnings from iron ore before interest and taxes were up year-over-year 195% in 2010 to $333 million.[2] The company achieved its iron ore sales volume target of 6 million tons in 2010.[2] During the year, OneSteel has also made a number of small acquisitions to improve its market position. OneSteel’s Recycling business made small acquisitions including Metals Trading and Ace Metals. The acquisitions of these businesses are helping to secure scrap volumes resulting in an improved market position for the Recycling business.[2]
Trends and Forces
The global manufacturing downturn has harmed OneSteel's bottom line
After experiencing the its most challenging year in 2009 due to the global financial crisis, OneSteel is still impacted by the global manufacturing downturn. Despite a drop in revenue, OneSteel's overall profit performance increased in 2010 compared to 2009 due to factors including the strong performance of its Iron Ore segment and benefits from initiatives implemented in 2009 due to the financial crisis. These initiatives also helped deliver a strong cash balance for 2010 and strengthened the company's balance sheet.[2]
New taxes levied on Australian miners could adversely affect OneSteel
In 2010, the Australian government proposed the Mineral Resource Rent Tax (MRRT).[2] The actual status of the MRRT is currently uncertain, as is the impact of the tax on OneSteel's iron ore and steel operations. OneSteel believes the legislation would threaten the cost competitiveness of its Whyalla Steelworks facility.[2]
The Australian government is also considering an emission trading scheme or a carbon tax.[2] The Australian steel industry is technologically constrained in its ability to reduce emissions and faces significant competition from foreign producers, such as those in China.
Both a mining tax and an emissions tax has the potentially to significantly reduce OneSteel's top line performance.
Competition
OneSteel faces intense competition from other steel producers and distributors, such as those in China and India. In addition, steel is a commodity product with insignificant differences between steel produced by different producers. This makes for a low margin business. OneSteel's main competitors include:
- BlueScope Steel Limited (BSL)
- Boulder Steel (ASX:BGD)
- China Steel (ASX:CNH)
- Alloy Steel International (AYSI)
- Bisalloy Steel Group Ltd. (BIS)
- Shougang Concord International
- Kobe Steel LTD (BER:KST)
- Vallabh Steels DS (BOM:513397)
- Albedo Limited
- Pomina Steel Corp. (POM)
References
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