MELBOURNE, Feb 19 (Reuters) - Arrium Ltd, an Australian steel maker and iron ore miner, reported a 34 percent drop in first-half profit but still beat market forecasts on strong growth in its mining consumables unit which supplies grinding balls to miners.
Australia's no.2 steel maker said it expects iron ore prices in the second half of its fiscal year to be above the weak average seen in the first half, but gave a downbeat view on its steel business.
"For the OneSteel steel businesses, we expect continuation of the difficult external environment, including a high Australian dollar and generally weak domestic demand," the company said.
Net profit before one-offs fell to A$51 million for July-December 2012 from A$77 million a year earlier. Four analysts on average had expected a first-half underlying profit of A$24 million, with forecasts in a wide range.
As flagged on Monday, Arrium booked a half-year loss after taking a A$474 million impairment charge on its manufacturing and distribution businesses, which have been hurt by the high Australian dollar and weakness in construction markets.
Arrium said it is on budget and on track to meet its target production rate of 12 million tonnes a year in iron ore by July or August, which would make it Australia's no.4 iron ore producer.
It stuck to its forecast for production to be between 8 and 9 million tonnes for the year to June 2013.
While analysts have raised concern about the company's 35 percent gearing level and vulnerability to volatile iron ore prices, the company said it "continues to be comfortable with its banking covenants".
Arrium last year rebuffed a A$1.2 billion takeover offer from Noble Group and South Korean steel giant POSCO , who pounced with a A$0.88 a share offer soon after iron ore prices had slumped to a three-year low.
Arrium's shares have since recovered to trade at A$1.26 as iron ore prices have improved. (Reporting by Sonali Paul; Editing by John Mair)