OneSteel warns of volatility in international steel market

OneSteel managing director Geoff Plummer on Monday forecast earnings before interest, taxes, depreciation and amortisation (EBITDA) for the steel market of up to $780 million in fiscal 2008. This follows the company's $1 billion acquisition of Smorgon Steel Group Ltd in August.

"Based on our current forecast for the merged company, the range at the EBITDA level is between $710 million to $780 million," Plummer told shareholders at the company's annual general meeting in Melbourne on Monday.

Plummer said the company was seeking to clarify its earnings guidance, with many analysts forecasting a range of about $700 million and $850 million for fiscal 2008 post the merger.

He said earnings in fiscal 2008 would be skewed towards the second half, with a full six-month contribution from the Smorgon business and a "more favourable" pricing environment.

OneSteel is Australia's second largest steel maker, producing about 1.73 million tonnes in fiscal 2007.

The company is also a producer and exporter of iron ore, selling about 1.8 million tonnes of the raw material in 2007.

OneSteel aims to export about four million tonnes from its operation in South Australia.

Plummer said domestic demand remained strong but warned of currency pressures and volatile market conditions.

"In terms of the current financial year, underlying domestic demand remains generally strong - albeit mixed across regions and sectors," Plummer said.

"International steel market conditions remain volatile and there is some uncertainty as a result of the rapid appreciation in the Australian currency against the US dollar."

Plummer said there was strength in the non-residential and engineering construction sectors but weakness in the residential market and manufacturing and automotive sectors.

"The rural sector continues to be impacted by the drought, while the resource/mining sector continues to grow," Plummer said.