Steel & Tube sees lower profit

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Steel & Tube has downgraded its profit forecast for the half year to December after trading conditions worsened more than expected.

"We have had a very tough first four months of trading with a continuation of soft volumes and even greater pressure on margins," chairman Dean Pritchard told yesterday's annual meeting in Wellington. "Present indications are that we will not in the current half year to December meet the performance of the second half of last year."

Wellington-based Steel & Tube made a $26.1 million tax-paid profit for the year to June, down 15.9 per cent.

The second half of the year contributed just $5.3m after tax.

Mr Pritchard said the last financial year was one of two halves. After a record start the full impact of the global financial crisis was felt in the second half.

"Demand collapsed, prices fell and margins were squeezed."

The firm had responded by restructuring the cost base, staff cuts, and freezing management salaries and directors' fees.

"However, the global recession appears to be ending as world economic growth turns positive, although the pace of recovery is expected to be slow."

World steel production had recovered, but concern over levels of restocking and sustainable demand in China meant prices continued to be volatile.

Prices had come off their recent peak in August, Mr Pritchard said.

"Steel price volatility along with exchange rate fluctuations are the two most significant factors impacting upon our business."

The building and construction markets were still subdued and a solid recovery was expected to be some way off.

"The remainder of this financial year will be challenging."

But with the economy appearing to be turning the corner, a pick-up in demand combined with the cost saving measures meant profits could recover quickly.

New chief executive Dave Taylor said that at the time of the annual results announcement in August, the firm had expected to face continued soft volumes and pressure on margins. "In the event, the market is proving to be more difficult than forecast at that time."

Mr Taylor arrived from Australian parent OneSteel early last month to replace long-serving boss Nick Calavrias, who left in April.

While there was some prospect of an improvement in trading during 2010, it was too difficult to predict whether this would have a significant impact on the current financial year, Mr Taylor said.

The global financial crisis had affected businesses' ability to finance or refinance projects.

Residential building consents fell to their lowest point since records began in 1965. Commercial construction consents by value rose 7.6 per cent, but this was not enough to offset the decline in residential, Mr Taylor said.

Reserve Bank comments this week that economic activity was improving were encouraging, but indicators were mixed, with unemployment continuing to rise, reduced inflation and interest rates at near-historic lows.

Rugby World Cup projects would help to sustain commercial construction, but there had been a noticeable drop in the square metres of new commercial construction approvals.