Steel

The Steel division’s earnings were down from the prior period’s record levels, with operating earnings before unusual items 57 percent lower than the prior corresponding period.

Sales were 25 percent lower than the prior corresponding period driven by both pricing and volume impacts.

Steel prices peaked in the second half of 2009 driven by very strong demand. Volume and pricing both contracted significantly with the advent of the global financial crisis. Since then the industry has been in a consolidation phase whilst global inventories are re-aligned with the recessionary environment. As such, even though operating earnings were far lower than the prior year, the division has weathered the volatility and is well positioned to participate in an industry upturn.

Capacity reductions taken in virtually all business units in 2009, together with a stronger focus on customer management and service, have assisted in ameliorating the operating earnings decline.

The long steel businesses which include Pacific Steel and a 50 percent interest in Sims-Pacific performed to expectations even though earnings declined by 66 percent to $16 million for the half year.

At Pacific Steel volumes and pricing were down 15 percent and 38 percent respectively, which resulted in margins reducing by 9 percent, to 16 percent. Infrastructure construction projects have continued to support volumes.

The rollforming and coatings business experienced an operating earnings decline of 35 percent to $23 million for the half year. Volumes were down 14 percent as housing and commercial construction activity declined significantly in both Australia and New Zealand. In Australia, volumes have been improving as the Government stimulus packages have increased economic activity in the building sector.

The distribution and services businesses experienced an operating earnings decline of 79 percent. Fletcher Easysteel’s operating earnings were well down on prior year due to a combination of contracting margins and low volumes. Easysteel’s margins contracted as lower prices reduced the value of existing inventories.