By Simon Evans
Australia’s largest steelmaker is set to be a winner from US President Donald Trump’s decision to double tariffs on imported steel to 50 per cent, but the move creates further uncertainty for the sale of Whyalla Steelworks.
BlueScope Steel’s substantial US operations generate about half of the company’s annual profits. It owns the North Star steel mill in Ohio, which supplies the automotive, white goods and agricultural industries and makes about 3 million tonnes of steel a year.
This is more than 10 times the amount of steel BlueScope exports to the US from its Australian operations at Port Kembla, of between 200,000 tonnes and 300,000 tonnes of steel annually.
Trump on Saturday said he would increase tariffs on imported steel from 25 per cent to 50 per cent to “further secure the steel industry in the United States”, in the latest move in his rapidly changing global trade war.
John Ayoub, portfolio manager with Wilson Asset Management, said the decision put North Star into a prime position to win more business.
“US steel protectionism seems to be one of Trump’s stickier policies,” Ayoub said on Sunday.
“North Star is absolutely well-positioned to capitalise on this and these structural tailwinds will ultimately be a winner for BlueScope, against the short-term headwinds created by the noise,” he said, referring to the volatile short-term uncertainty the broader tariff chaos brought to the global economy.
The new impost comes amid a backdrop of excess capacity globally, with the OECD outlining in a report last week that subsidies were distorting a global market where extra capacity of up to 7 per cent was due to come on line by 2027, much of it from China where subsidies were running at 10 times the level of OECD countries.
David Buchanan, the chief executive of the Australian Steel Association, said on Sunday that companies with assets in the US would be in a stronger position.
“Anyone with assets in the US will absolutely be a beneficiary,” Buchanan said.
BlueScope’s expansion in the US, largely driven by energy costs being about one-third less compared to those in Australia, appears to be shrewd.
“It’s really going to pay off at least for the Trump term.”
He said the fallout in Australia should be minimal in the short term, but there was a risk of disruption in the broader market as other big steel-producing countries such as China, Mexico and Canada hunted for new markets, exacerbating a global steel oversupply issue.
“Globally, the bigger issue is in oversupply. The contagion risk is definitely there.”
China exports about 100 million tonnes of steel. The OECD said last week there was excess capacity in the market and that competition was being distorted by subsidies.
“The global steel industry faces persistent challenges that are likely to intensify through 2025 and beyond. Planned capacity expansions risk deepening global excess capacity amid sluggish demand growth,” it said in a report.
It outlined planned increases by various companies between 2025 and 2027 of up to 7 per cent, which would “exacerbate global excess capacity”.
“China’s subsidies are 10 times higher than those in OECD countries, encouraging overcapacity and unviable investments,” the report stated.
The oversupply was also slowing efforts to decarbonise the industry.
“Excess capacity is also undermining investment in steel decarbonisation. While many firms are pursuing decarbonisation technologies, progress is uneven due to limited access to renewable energy and high-grade ore,” the OECD said.
The tariff disruption comes at an awkward time for the administrator of the failed Whyalla steelworks, KordaMentha, which is trying to find a buyer for the plant and its associated iron ore mines in South Australia.
Although the US tariffs themselves have a minimal effect on the Whyalla steelworks, which is mainly focused on making railway lines and structural steel for customers in Australia, the tariffs add to the global industry uncertainty at a time when potential buyers need to carefully weigh up where to invest capital.
The steelworks, previously owned by British industrialist Sanjeev Gupta, went into administration in February when the South Australian government, led by Premier Peter Malinauskas, forced the business into administration.
BlueScope Steel had been a technical adviser to the Whyalla steelworks for two months from late February, working for KordaMentha to stabilise the operations.
But a team of about 12 experts from BlueScope has now left the plant to alleviate concerns about potential conflicts of interest as the sale process proceeds.
BlueScope, South Korea’s POSCO, and the billionaire Stokes family’s Seven Group Holdings, which owns Boral and Coates Hire, have looked over the assets.
India’s biggest steelmaker, JSW Steel, part of the $43 billion listed conglomerate JSW Group, has also been a tyre-kicker in the process.
Prime Minister Anthony Albanese and Malinauskas joined forces in February to announce a $2.4 billion rescue package for the steelworks.
BlueScope shares are up about 20 per cent since the start of this year to $22.75, up from $18.69 in early January.
Jarden analyst Rohan Gallagher said in a research note in April that BlueScope would benefit from the Trump administration’s trade policies because of its US footprint.
“Companies need to be lucky as well as good,” Gallagher said.
BlueScope in late 2015 paid $US720 million to move to 100 per cent ownership of the North Star mill, buying out the remaining 50 per cent stake from US firm Cargill.
