Steel & Tube Holdings said net profits fell 19 per cent to $22.5 million from a year ago, depsite an per cent jump in revenue to $504m.

But the engineering and contracting company said profits in the second half of the year “improved substantially” and were achieved in a rapidly slowing economy.

The company cited a number of challenges to its business, including exchange rate volatility, high interest rates, drought, declining consumer sentiment and a squeeze on finance for property developments.

“Considerable pricing volatility for replacement inventory was encountered in the early part of the financial year, putting pressure on margins,” said chief executive Nick Calavrias.

A strong dollar and interest rates were also cited last August, when the company reported a 9 per cent fall in profits, again on increased revenue.

It had been hoped strong dairy farmer earnings flowing through the economy would help these 2008 results.

Substantial price increases in input costs to make steel, such as iron ore, coal and scrap metal coupled with an increased global demand for steel pushed the price of replacement steel inventory up and pushed the domestic price of steel products up, said Calavrias.

As a major supplier of products to the building and manufacturing sectors, Steel & Tube expects a gradual improvement in the construction sector next year due to infrastructure projects and commercial activity relating to the 2011 Rugby World Cup.

It is also hoping a weakening NZ dollar will boost exporters incomes.
“Provided that the New Zealand economy is not adversely affected by global events, we expect to post an improved result in the year ahead,” he said.

Steel & Tube shares have fallen this year from highs of around $4 in February and are currently trading at $3.15 each.

Purchasingdata.com is posting an early July transaction price for hot-rolled steel sheet in the Midwest at $1,068/ton, which is the same price average being posted by the Platts Steel Business Daily subscription newsletter. This price average is just 1% higher than the $1,052 price average for June although it is 96% higher than in December 2007.

Some other market researchers are estimating July bookings at prices in a $1,074-$1,080 range but transactions actually are being reported this week as low as $1,060 for deliveries within four weeks.

Interestingly, the mills still are looking for a consensus on future hot-rolled pricing: Nucor now has an August list price of $1,120/ton for hot-rolled sheet while reference prices for U.S. Steel and ArcelorMittal in September are $1,100. All of these proposed prices are less than expected earlier, which supports the view that many buyers at original equipment manufacturing (OEM) firms and service centers have gone on vacation.

Back in May, separate polls of analysts by the Kiplinger subscription newsletter and the Reuters news service suggested that steel users could expect to pay around $1,200/ton for hot-rolled steel by July, or slightly more than twice the cost in January when the transaction average was $579. That hasn’t happened and some analysts now suggest that the hot-rolled price peak has arrived and post-Labor Day slippage back to $1,050 to $1,060 is possible.

One buyer sees the tentative nature of future pricing as evidence that sheet prices may have peaked. “The price increase could prompt some to buy in advance, but I think we’re pushing the envelope,” he tells the Steel Business Briefing online subscription newsletter.  In fact, some market analyses suggest hot-rolled sheet prices could fall to $900/ton by December due to the seasonal fourth-quarter slackening in demand.

Corrado De Gasperis, CEO of the Novamerican steel service center chain, agrees in his quarterly earnings statement that recent monthly price increase by the steel mills appear relatively weaker than prior increases. He and other analysts say that the initial spike in prices were pinned to cost increases and then by allocations of supply as the mills boosted exports. However, there hasn’t really been a surge in exports and now are slowing because of the strengthening dollar.

It is reported that Hebei based Handan Steel has released its latest EXW prices for some products. Prices are maintained flat with that published on July 18th.
 
 Common Carbon Wire Rod unchanged.
 Q215 to 235A/B 6.5mm to12mm wire rod is priced at CNY 5780 per tonne
 Q215 to 235A/B 6.5 to 12mm high speed wire rod at CNY 5880 per tonne.
 
 Rebar unchanged.
 HRB335 12mm rebar is offered at CNY 5910 per tonne
 HRB335 14mm rebar at CNY 5860 per tonne
 HRB335 16mm to 25mm rebar at CNY 5710 per tonne.
 
 Common Carbon Medium Plate unchanged.
 Price for Q235B 14mm to 25mm medium plate stands at CNY 6700 per tonne
 Low alloy plate is subject to a premium of CNY 180 per tonne on the basis of that for common carbon plate.
 
 Shipbuilding Plate unchanged
 CNY 50 per tonne higher for plate with thickness of 50mm or more.
 CCSA20mm shipbuilding plate is quoted at CNY 7695 per tonne.
 
 Round Steel unchanged.
 Latest EXW price for Q215mm to 235 16mm to 25mm round steel prevails at CNY 5750 per tonne.
 
 Prices listed above are INCLUSIVE of 17% VAT, effective as of July 18th.

Posco, Asia’s third-biggest steelmaker, will spend 1.4 trillion won ($1.4 billion) to boost production to meet rising demand from shipbuilders and carmakers.

Capacity will expand by 2 million metric tons by 2010 with the construction of a new plant in South Korea, the Pohang-based company said in an e-mailed statement today after holding a ceremony to mark the start of construction. That’s a 6.4 percent gain from last year’s output.

Steel prices have surged to records globally as producers haven’t invested in enough new plants to keep pace with rising Asian demand. The expansion will increase operating profit by 7 percent from this year, according to Posco.

“It’s a positive move,” Lee Won Jae, an analyst with SK Securities Co., said in Seoul. “Solid steel demand enables Posco to make such investment. Hot-rolled coils and shipbuilding steel in particular are in shortage.”

Posco closed unchanged at 510,000 won in Seoul trading today, compared with a 1.2 percent advance in the broader benchmark Kospi index.

The company will increase annual operating profit by 410 billion won after 2010 as the expansion will boost output of hot-rolled coils, ship-plates and billets, it said.

Record Profit

Posco last week boosted its full-year earnings forecast by 19 percent after posting a record second-quarter profit. The steelmaker has increased prices 63 percent this year, more than covering the increase in materials costs.

“For a company like Posco with sufficient capital, it won’t be any problem to finance the project,” SK’s Lee said.

Prices of steel plates used to make ships may gain as shortages will persist in Asia until 2010 because of demand from shipyards in China and South Korea, Mirae Asset Securities Co. said in February.

Posco said April 1 it wants to boost annual crude steel output, including overseas production, to more than 50 million tons over the next decade from 31.1 million tons last year.

Competitor Baosteel Group Corp., China’s largest mill, plans to increase capacity to 80 million tons by 2012 from 30 million tons now.