Smorgon Numbers Hurt by High Scrap Prices

Smorgon Steel reported a profit of $103 million for the most recently reported quarter, a decline from figures the same time last year.

Ray Horsburgh, managing director and CEO for the Australian-based steel company, noted sharply higher scrap metal prices as one of the reasons for the decline.

 “It is disappointing to have to report lower profit for 2003/4 because the company had a very good year in most other respects. Sales increased by 4.3 percent to $2.623.0 billion and, after adjusting for the effect of businesses sold by the Company, core sales increased a creditable 9.5 percent to $2.605.7 billion in 2003/4.”

“The difficulty we faced in 2003/4”, he added, “was that we were unable to increase prices for our finished products quickly enough to offset rapidly rising raw material costs. Increases in prices for ferrous scrap cost the company approximately $20 million of EBITA in 2003/4.” The situation we faced was brought about by high volumes of imported steel products entering Australia at relatively low prices, notwithstanding the fact that steel making raw material costs were rising globally. Strong demand for steel in Australia was partially satisfied by increased volumes of cheap imports.”

Horsburgh noted that the competitive environment began to improve in the early months of 2004, with import volumes easing and the landed price of imports beginning to rise. “Following an improvement in trading conditions from the March quarter of 2003/4, Smorgon Steel successfully implemented a series of product price increases to cover higher raw material costs that had been previously incurred.”

Looking forward, Horsburgh commented “The demand outlook for steel products in Australia remains healthy. Imports of steel products appear to be more rational than was the case for most of 2003/4. We look forward to the current trading environment continuing.