Steel & Tube forecasts drop in first-half profit as Chinese steel weighs on prices

Steel & Tube Holdings [NZX: STU], New Zealand's biggest steel distribution company, forecast a drop in first-half profit, citing the impact of lower-priced Chinese steel in eroding margins.

Profit would undershoot last year's $10.8 million first-half result, although the Wellington-based company wasn't specific on the size of the decline. Its shares fell 5.3% to $2.50 on the NZX today and have dropped 12% this year.

Chief executive Dave Taylor told shareholders at their annual meeting today that increasing low-priced steel exports and imported pre-fabricated steel was putting New Zealand's steel industry under pressure. "Finished steel prices are now at their lowest level for almost 13 years."

Many countries have imposed anti-dumping legislation to help protect their steel industries, which has seen some product redirected into open countries such as New Zealand, he said.

"What's not appreciated is that these lower steel prices have a significant impact on distribution margins, too," Mr Taylor said. "With the decrease in steel prices over the past three years, New Zealand's entire steel distribution profitability is estimated to have reduced by $45 million compared to three years ago." The issue had accelerated in the past 12 months.

China's steel exports rose 38% in the year ended September 30 and are likely to exceed 100 million tonnes this year. That dwarfs New Zealand's annual demand across all steel products of less than one million tonnes a year, he said.

The full-year result won't be hurt to the same extent because the profit impact of low prices will be offset by the contribution from recently acquired businesses.

Steel & Tube acquired Tata Steel (Australasia) for $28 million in April 2014, renaming it S&T Stainless, and in July this year agreed to buy fastener distributor Manufacturing Suppliers for $32 million in a cash and scrip deal. In August it bought Aquaduct NZ, which specialises in large bore long-length polyethylene pipe, out of receivership for about $8 million cash and picked up associated company Bosch Irrigation, which was put into receivership in May.

Chairman John Anderson said the acquisitions will take Steel & Tube "into new and exciting territory as well as helping to offset volatility in the commercial steel market, and a moderating New Zealand economy."

(BusinessDesk)