14 Aug 2012

Steel and Tube expects another tough year

2:00 pm on 14 August 2012

Steel products distributor Steel & Tube Holdings says it's expecting another tough year, with global steel prices expected to remain volatile.

The company says weak demand and excess capacity in China will put further pressure on cheap imports.

The company's group profit after tax for the year to June was $13.1 million, down from $17 million the previous year.

Steel & Tube, which distributes all its steel products to the New Zealand market, says activity in its key construction, manufacturing and rural sectors was subdued.

Chief executive Dave Taylor says the market has picked up very slightly and the company is looking to maximise its opportunity in Christchurch, but the global situation is likely to override what's happening domestically and the market will remain challenging.

Mr Taylor thinks the price of steel could worsen in the short to medium term.

He says China dominates the market globally and the Chinese economy is reducing, so with steel prices coming down in China, the Chinese manufacturers are looking to export more steel.

"The implications for that is increased volatility. It means we need to think about how we source product and where we source product from and ultimately that will impact New Zealand domestic steel prices.

Consolidation seen as necessary

The head of private wealth research at Forsyth Barr, Rob Mercer, says that at the moment all steel companies are suffering from having to share a smaller market and there needs to be some merging of operations in New Zealand in order to reduce costs.

"In effect, "Mr Mercer says, "there's the same number of players fighting for 30-odd percent less volume in steel and it's not sustainable - and that's across 50,000 products."

He says he believes that at some point the industry's low earnings are going to force some companies to make changes to the way they operate.