BlueScope Steel Sees Dramatic Slowdown in China Construction

Feb 24, 2014 1:02 am ET

(Updates to add closing shares in fifth paragraph.)

Feb. 24 (Bloomberg) -- BlueScope Steel Ltd., Australia’s biggest steelmaker with 32 offices in China, said demand for industrial buildings and construction products is slumping in the world’s second-largest economy.

“We didn’t expect the Chinese slowdown to be quite as dramatic,” Chief Executive Officer Paul O’Malley said today on a call with analysts. “In building activity, in our space in particular, we are seeing negative growth at the moment.”

Shipments from BlueScope’s engineered buildings unit, which makes steel warehouses and factories, fell 7 percent in China in the six months to December from a year earlier, while volumes across Asia rose 10 percent, the company said today in a statement. China’s economy is forecast to expand at the weakest pace in almost a quarter century in 2014, according to estimates compiled by Bloomberg, as the nation moderates spending on infrastructure.

The China buildings unit is “a bit of lead indicator in terms of investment across industry and manufacturing,” O’Malley said in an interview today with Bloomberg Television’s “On the Move.” “In basic industry at the moment, there’s a pause in investment until people understand where the Chinese economy is going.”

BlueScope advanced 7.3 percent to A$6.30 at the close in Sydney, the highest since July 2011, after posting a profit for the first time since 2010.

Xi’an Plant

The company opened a plant in Xi’an, in central Shaanxi province, in July to tap development in the country’s central region. It offers pre-fabricated industrial buildings with vegetated roofs, rainwater harvesting and other environmental features.

Demand for BlueScope’s custom-made buildings in Asia will remain weak in the second half, said O’Malley. Asia accounted for 18.7 percent of BlueScope’s revenue in the 12 months to the end of June, according to filings.

Net income in the six months to the end of December was A$3.7 million, compared with a A$23.8 million loss in the same period a year earlier, lifted by demand for building products in North America, Australia and Thailand, the company said.

The U.S. is seeing “tremendous economic growth” because of its low energy costs, a flexible labor market and pro- business policies, O’Malley said. “It’s all coming together in the U.S. and it’s certainly supportive for our businesses,” he told Bloomberg Television.

Underlying profit in the second half is expected to be similar to the previous six months, though planned maintenance shutdowns in Australia may reduce production and export volumes, the company said in its statement.

--Editors: Andrew Hobbs, Indranil Ghosh