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Edited Transcript of BSL.AX earnings conference call or presentation 22-Feb-21 10:59am GMT

·85 min read

Half Year 2021 BlueScope Steel Ltd Earnings Presentation Victoria Feb 22, 2021 (Thomson StreetEvents) -- Edited Transcript of BlueScope Steel Ltd earnings conference call or presentation Monday, February 22, 2021 at 10:59:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Mark Royce Vassella BlueScope Steel Limited - MD, CEO & Director * Tania J. Archibald BlueScope Steel Limited - CFO ================================================================================ Conference Call Participants ================================================================================ * Jack Gabb BofA Securities, Research Division - Associate * James Brennan-Chong UBS Investment Bank, Research Division - Associate Director and Mining Associate Analyst * Lee Power CLSA Limited, Research Division - Research Analyst * Lyndon Fagan JPMorgan Chase & Co, Research Division - Analyst * Matt Starick * Nick Herbert Crédit Suisse AG, Research Division - Research Analyst * Paul Joseph McTaggart Citigroup Inc., Research Division - Director and Metals & Mining Analyst * Peter Steyn Macquarie Research - Analyst * Simon Thackray Jefferies LLC, Research Division - Equity Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [1] -------------------------------------------------------------------------------- Good morning, and welcome to BlueScope's First Half FY '21 Financial Results Presentation. My name is Mark Vassella, and here with me today is Tania Archibald, our CFO. Together, we'll take you through our results and the major initiatives we're undertaking across our businesses and then take your questions. Firstly, the safety, a responsibility that starts with all of us. Our focus over the last half has, of course, been on maintaining the health, safety and well-being of our employees, customers and communities through the COVID-19 pandemic. I'm incredibly proud of our team's efforts in rising to the unprecedented challenges this pandemic created in how we work, be it adhering to increased hygiene and distancing requirements, keeping our lines running under trying circumstances or adopting an entirely new way of working at home. In all but 3 jurisdictions, Malaysia, India and New Zealand, BlueScope maintains safe operations throughout COVID lockdowns. And in Australia, we were very pleased we did not need to avail ourselves of any government job keeper funding. In recent times, we've talked about how we're evolving our approach to health and safety/risk management. Accordingly, you'll see we're also evolving our performance indicators. This includes introducing leading indicators and reducing the emphasis on injury frequency rates to place greater focus on the severity of any incident or injury that we do have. Here and now, though, I'm still not happy with our safety performance. This half saw an increase in our TRIFR metric with 123 injuries recorded across our workforce of 14,000 employees and 4,000 contractors. I note, however, this metric is not only affected by the number of injuries, but also the hours worked, which contracted slightly in the first half of FY '21. The injuries we have observed continue to be predominantly sprains, strains and lacerations, with our severity analysis of these injuries and the incidents showing that only one of these injuries had the potential to be permanently life-changing. We're committed to get to the next level of safety performance. Our evolution is well underway, and we're shifting to a culture of learning by adopting a human-centered approach, recognizing that human error is inevitable. We're also tapping into the deep knowledge and experience of our people, using their expertise in the assessment of workplace risks and designing effective controls. And we're building capability in our people. So far, we've had already 650 of our leaders involved in our 3-day global HSE risk management training program, including all of our Board and the ELT. The results here again show the incredible strength and value of our business model, and here's why. The operating leverage from our diverse portfolio has clearly been demonstrated in this half's results. We continue to generate strong cash flows and retain a strong balance sheet with over $300 million of net cash at 31 December and liquidity of over $3 billion. With our focus on flat steel building and construction, we're well positioned to meet emerging trends such as the shift to regional and lower-density housing and the demand for e-commerce infrastructure, such as warehouses and data centers. Our cornerstone growth project, the USD 700 million expansion of North Star, remains on track for a start-up in the second half of FY '22. The quality of the North Star business has been underscored by high utilization and demand levels amid accelerating U.S. industry consolidation. And we have 2 very exciting developments that we're announcing today. Firstly, we've created an executive leadership team role to be filled by Gretta Stephens of Chief Executive Climate Change. This results -- this reflects our intent to ramp up action in this important issue. And secondly, we've commenced pre-feasibility assessment for a Port Kembla blast furnace reline, which is likely to be the most technically feasible and economically viable option whilst longer-term breakthrough low-emission technologies are developed and scaled. Post the reline, if approved, our strong cash generation provides flexibility and optionality to adopt new technologies as and when they are technically and commercially available. Here's our financial scorecard. In short, we saw a strong earnings improvement in the first half of '21 over both the first half of '20 and the second half of '20. As signaled to the market late last month, underlying EBIT was $531 million, being $228 million better than the first half of '20. The last 12 months' ROIC climbed back to 11%. Cash flow and balance sheet continue to be solid, with operating cash flow, including CapEx, of $265 million in the half or $433 million if you exclude the North Star expansion CapEx. The Board has announced the payment of a $0.06 per share interim dividend, and the buyback remains on hold. Whilst market conditions are currently strong and our balance sheet is robust, there remains a backdrop of uncertainty, including the risk of COVID-related disruptions to our operations, markets and supply chains. We anticipate this situation should improve as vaccination programs are rolled out globally in the coming months. We have a disciplined approach to capital management. And with $600 million of cash to spend in calendar '21 and '22, the North Star expansion remains our priority. 6 months ago, we reflected on some of the trends we expected to see emerge as the world adjusts to the impacts of COVID-19. And we're already seeing these trends play out. First, in our key markets, there's been a clear rise in residential construction activity, driven both by a redirection of discretionary spend and through government stimulus such as the HomeBuilder program. This is clearly evident in the strong rise in building approvals data and the highest domestic despatches in the Australian steel products business for a decade. When you take into account the loss of auto manufacturing volumes over the last decade, that is a truly remarkable result. Second, with the uptake of remote working, lower appetite for public transport travel and preferences for a level of distancing, we see the beginnings of a shift towards lower-density and regional residential housing. This is at the heart of BlueScope's flat steel products offering and plays to the more readily transportable nature of steel compared to other building products. Third, the digital economy and logistics continue to grow rapidly and so, too, the need for e-commerce infrastructure, including warehouses and data centers. Again, this is a sweet spot for BlueScope. Fourth, as government spend on infrastructure ramps up, steel will be a key input requirement. The pandemic has reinforced the need for sovereign capability. And finally, in the U.S., auto demand has recovered sharply with the rising preference toward private road travel, which is the key steel consumption driver. Tania will take you through the details across the segments in a moment. But at a high level, we've seen stronger performances across all segments, barring North Star, which was impacted by lower benchmark steel spreads off the back of the temporary shutdown of auto production in quarter 4 of FY '20. A credit to the whole team in what has been an extraordinary operating environment. And I remind you all, Connell Zhang will join us on the 1st of April to lead the NS BlueScope joint venture, as we announced in January. You'll be familiar with our strategy, and 6 months ago, we shared with you our purpose. We've been delighted with the response to our purpose. We create and inspire smart solutions in steel to strengthen our communities for the future. It's garnered strong support internally, creating a sense of identity and divined a sense of purpose amongst the team. And we've also been highly encouraged by the response from our external stakeholders. Our strategy hasn't changed and continues to guide our investment, development and how we operate. A key part of our strategy is the USD 700 million North Star expansion project. With the ongoing consolidation and rationalization of the U.S. steel industry, we're excited about the compelling growth opportunity it presents for BlueScope. Today, I'm pleased to report that the project continues to progress well and is running on time and on budget. Over the last 6 months, construction has significantly progressed. Main process buildings are largely complete, and we are now ramping up the equipment installation phase. Workforce recruitment is progressing well, with about 2/3 of the required personnel employed. Our strategy has been to take our very best operators and place them on the project, backfilling their roles with our new recruits who join experienced teams. And of course, as we manage this large and complex brownfield construction site, there remains a strong focus on managing COVID-19 risks given the high U.S. community infection rates. 2020 was a year where we saw significant steel industry rationalization and consolidation, supporting an improved industry structure in the United States. The pandemic-induced downturn in activity levels across steel-consuming sectors resulted in over 10 million tonnes of steelmaking capacity being taken offline. And while mills temporarily idled through 2020 have mostly restarted, long-term closures have been retained and are expected to offset planned capacity additions. U.S. Steel rolled out its best of both strategy, acquiring the EAF operations of Big River Steel and shuttering legacy blast furnace operations, such as Great Lakes, which is in close proximity to North Star. We also saw Cleveland-Cliffs become the country's biggest steel producer through the acquisitions of AK Steel and ArcelorMittal's U.S. blast furnace operations. They espouse a value over volume strategy as they historically have done for their iron ore business. As we pursue our purpose, we continue to embed sustainability in all that we do. Some highlights from the last 6 months. On diversity and inclusion, in the first half of FY '21, we launched a 5-year global inclusion and diversity strategy focusing on diverse workforces, inclusive experiences and a purpose-led business. Importantly, female workforce participation continued to improve. Our supply chain sustainability plans remain on track to complete the targeted priority 1 and 2 supplier assessments by the end of this financial year. For our local communities, our efforts over the last half have heavily focused on support through the pandemic. Across our footprint, our businesses have provided in-kind support to local food banks and other community organizations. Throughout the half, we launched the How We Work, a step-up from our existing code of conduct, which sets out what we expect of every single employee as we live our purpose and our bond. This builds on the high standards we have established in ethics and compliance and clearly states our expectations of every BlueScope employee. I also note that as previously disclosed, the civil proceedings brought by the ACCC alleging contraventions of the Australian competition law cartel provisions are ongoing. As we've previously stated, BlueScope denies that it or any of its current or former employees engaged in cartel conduct. We continue to strongly defend the allegations made by the ACCC. Over recent years, we've worked to embed climate change into our corporate strategy, and we firmly believe that taking action on climate change is essential to our long-term success. Today, we go a step further. We're now formalizing our approach with the announcement of the establishment of a new executive leadership team position, appointing Gretta Stevens as Chief Executive Climate Change. With her technical background in engineering and material science and her track record of working with government and wider industry to solve macro problems, Gretta is ideally placed to lead this new global function. Gretta will now drive the work already underway, including building out our decarbonization pathway and our long-term carbon reduction aspirations, which will be informed by the extensive work in progress across our businesses. This is a large body of work, and we look forward to reporting our outcomes and direction later in the year. We recognize that the future of hard-to-abate industries like iron making will need to be centered around breakthrough technologies once proven and scalable. Encouraging work is being undertaken around the globe to explore breakthrough green steel iron-making technologies, including hydrogen and electrolysis. And I appreciate that given recent media commentary, many of you may ask, why not adopt alternative technologies such as hydrogen-based iron making in the nearer term, instead of assessing the next blast furnace reline, which I'll come to shortly. A diverse group of hydrogen-based iron-making technologies are currently being explored. These range from the injection of hydrogen into existing blast furnace operations to the more radical replacement of front-end iron making with DRI solely using hydrogen. Let me be clear. Whilst these prospective hydrogen iron-making technologies are promising, those which have the potential to deliver a meaningful reduction in greenhouse gas emissions are in early-stage technology development. Most range from concept studies to prototypes and demonstration plants, with further significant advances in technology required. We expect these emerging technologies will continue to develop over this decade and the next with larger scale take up across the steel industry in the 2040s, consistent with the recent views expressed by BHP. These emerging technologies will also require supportive public policy and capital to reach commercial scale. I encourage you to refer to the IEA's Iron and Steel Technology Roadmap, which was released in October last year and provides a comprehensive and highly credible assessment of prospective iron-making technology options. If I focus on hydrogen-based iron making just for a moment, to be successful in the longer run, we require competitively priced hydrogen from renewable sources, that is green hydrogen. The current cost of hydrogen in Australia is $5 to $6 per kilogram or $40 to $48 per gigajoule, which is 5x the cost of natural gas. The federal government stretch target for hydrogen is $2 per kilogram, which would reduce the cost to $16 per gigajoule. Clearly, there is a lot to do to make hydrogen competitive. In addition, DRI production based on hydrogen replacing natural gas is yet to be commercially proven. Again, we're excited by the potential of hydrogen-based technologies. We're also aware of the technology readiness level of these concepts and the lead time for their commercialization relative to the campaign life of the #5 blast furnace. This clearly puts the spotlight on the scale of the challenge confronting us and manufacturing industries more broadly to deliver large-scale greenhouse gas emissions abatement in Australia. Specifically, we need: access to affordable, firm and reliable energy, with a focus by governments, both federal and state, on addressing the barriers to high natural gas and energy costs. Without this, manufacturing and other sectors simply cannot be competitive over the longer term. We also need energy grids to be decarbonized as swiftly as possible without loss of grid reliability, which is critical to our manufacturing industries. We need widespread availability of competitively priced hydrogen from renewable sources. And we need policies to be in place for Australian steelmakers to invest in decarbonization to avoid putting us at a competitive disadvantage to competitors whose costs are lower because they continue to use existing higher emissions technologies. So in the short to medium term, the steel sector will need to rely on incremental technology performance improvements within conventional routes, increasing use of firmed renewable energy and other abatement measures. At BlueScope, we're assessing a diverse portfolio of projects, including optimizing raw material mixes, waste heat and gas recovery, increased scrap usage and greater use of renewable energy as part of the blast furnace reline pre-feasibility study. We'll update you on our plans later this calendar year, together with our updated climate scenario analysis and our longer-term carbon emissions reduction plan. Turning to the pre-feasibility work being done on the Port Kembla blast furnace reline. We've commenced work on options for the future configuration of the steel works once the #5 blast furnace comes to the end of its current operating campaign, which is now expected to occur late in this decade, with an indicative range of 2026 to 2030. The furnace is operating well, and the business is planning to continue to operate it for as long as it's efficient, reliable and safe to do so. However, given the critical nature of iron making to the Port Kembla operations and to ensure we maintain supply and the role of steelmaking in Australia's sovereign capability, an alternate source of iron will need to be available from around 2026. At this point, a reline is likely to be the most technically feasible and economically viable option for Australian steelmaking given that longer-term breakthrough low-emission technologies are still under development. As part of the project assessment, we will be evaluating the latest technologies available to reduce carbon emissions intensity, which we see as integral to the project. We have considered the EAF steelmaking. However, it is not economically viable given Australia's higher energy costs and insufficient availability of cost-effective quality scrap steel to support 3 million tonnes of flat steel production at Port Kembla. Our initial focus is on the option to reline the currently mothballed #6 blast furnace. A reline of #6 would allow the project to be executed in a measured way with minimal operational disruptions. This contrast to a traditional blast furnace reline, where activity is typically highly concentrated within a relatively short window and with a higher risk profile. Now I'd like to be very clear. The reline of #6 does not lock us into blast furnace steelmaking for another 20 years. As emerging technologies are developed over time to full commercial scale, the strong cash flows and earnings capability of ASP provides significant capacity to transition to these technologies as and when they are technically and commercially viable in Australia. We're still in the very early days of the reline assessment and planning, and we'll give you an update once the pre-feasibility work is complete. I'll now hand over to Tania, who will take you through the performance of our business segments and our financial position. -------------------------------------------------------------------------------- Tania J. Archibald, BlueScope Steel Limited - CFO [2] -------------------------------------------------------------------------------- Thanks, Mark. In an outstanding half year, the Australian business delivered a significantly improved underlying EBIT of $259 million, driven predominantly by strong demand, particularly in the construction and distribution segments. Domestic demand was the strongest in a decade. Sales of our COLORBOND steel products were up 15% on 2 half '20 and metal coated sales volumes increased 10% on the prior half. Realized spreads were up on 2 half '20 on lower realized raw material costs and also lower net realizable value provisions, which reflected strengthening prices at the back end of the half. We also saw improved contribution from export coke sales, up $8 million on 2 half '20. This was an elevated performance on export coke, reflecting strong cyclical demand and a reduced cost base in line with the falling Australian coal cost, and we anticipate this strength in export coke markets will continue in the near term. Looking at the specific segments for ASP. Sales into the residential construction segment increased significantly in 1 half '21 compared to both 1 half '20 and 2 half '20. Alterations and additions activity surged as homebound consumers redirected discretionary spend. Sales into the residential segment were also supported by reconstruction activity following recent storm and flood events in Queensland and Western Australia. State and federal government stimulus measures, along with improved credit availability, also strengthened activity within the new detached and renovation sectors. The take-up of the HomeBuilder program has been strong with nearly 60,000 new build applications submitted before the December 20 deadline, with associated demand expected to flow into 2 half '21. Given the natural lag between applications and build time frames, we do expect the bulk of the impact of the HomeBuilder program will be felt in the second half. In terms of nonresidential construction, the commercial and industrial subsegment had a high level of approval activity prior to the pandemic, and that pipeline has carried over to support 1 half '21 activity. Private sector confidence has returned much faster than anticipated, leading to some projects previously paused now coming back into focus. The social and institutional subsegment has also been particularly strong, supported by government investment in health and education. Sales into the engineering and mining sectors remained stable, while sales into the manufacturing segment were largely unchanged. In the agriculture segment, we're continuing to see improvement with better growing conditions from encouraging rainfall during 2020. Looking at the macro indicators of the Australian building and construction industry. Overall, we've seen a fast recovery from COVID-19-induced impacts on activity, with government stimulus and redirected discretionary spending supporting demand. Detached house approvals have risen to strong record levels, well above the 90,000 to 130,000 annual range that's been tracked since 1965. The impact of HomeBuilder is also clear with private new home sales in December double that of the softer period in March to May. The drop-off in January was expected following the record December as applicants got in before the first phase of HomeBuilder cutoff. The strength in approvals should be supportive for despatches into this segment through at least the current half. Alterations and additions also look robust with homebound consumers continuing to redirect discretionary funds towards renovations, supported by low funding costs and improved economic sentiment. For residential construction, more broadly, we are seeing the trend towards regional areas and lower-density living, which are traditionally areas of strength for our flat steel products. In the nonresidential space, approvals remain at very good levels and the government's focus on fiscal support in health and education projects, along with its major infrastructure program, is likely to underpin demand in the medium term. Turning to North Star. This business produced an underlying EBIT of $70 million in 1 half '21, broadly flat to the prior half. It's been very much a tale of 2 quarters with very low spreads in the first quarter, followed by rapidly rising prices and spreads in the second quarter. The mill operated at full utilization through the half as demand strengthened and sales mix normalized with the ramp-up of auto production across the half. With natural lags in pricing, we expect the full benefit of improved pricing conditions to be seen in the second half '21. The result was also impacted by unfavorable FX translation with the stronger Australian dollar. Looking at North Star's end-market segments. We can see that a rapid recovery from the COVID-19-related dip in activity levels were seen across automotive, construction and manufacturing. As I mentioned earlier, the automotive market has returned towards pre-COVID-19 levels of around 16 million units per annum, with the ongoing shift towards higher steel intensity of light trucks and SUVs continuing. And more recently, I note there's been some questions raised around auto manufacturer temporary closures due to semiconductor shortages. Now we're not seeing any issues at present, with feedback from our key service center and processing customers that it's not expected to impact demand in the near term, given higher production backlogs and low car inventories. It's also worth pointing out that the impacted auto plants to date are quite geographically dispersed and so production impacts haven't been concentrated in our immediate region. We are, however, continuing to monitor the situation closely. Nonresidential construction has recovered from the depths of its COVID-19 dip, however, remains softer than the peak activity levels last seen in 2019. And manufacturing activity has rebounded solidly. Turning to Building Products Asia and North America. The business delivered a significantly improved result of $150 million EBIT, and all regions saw strong performances. China delivered a better result on higher volume due to usual seasonality and a recovery from COVID impacts in 2 half '20. We also saw cyclically expanded margins in 1 half '21 as the China business was able to reap the benefit of higher sales prices and relatively low feed costs. Across Southeast Asia, all countries delivered improved results over 2 half '20, with stronger volumes and, again, cyclical margin expansion driven by relatively lower steel feed costs in a rising price environment. The non-repeat of government-mandated shuts, particularly in Malaysia, also supported the record result when compared to 2 half '20. More broadly, the Southeast Asian businesses are continuing to see the full benefits of the Ignite cost and productivity improvement program, with at least $40 million of benefits now embedded in the business' performance. For our North American West Coast business, the construction sector and, in particular, the residential alterations and additions subsegment, saw strong demand on redirected discretionary spend, whilst margins were also enhanced by the rising steel price environment and relatively low cost of steel feed. Now at this point, we don't expect the margin expansions that we've seen in China and Southeast Asia to continue into 2 half '21, as Southeast Asia, in particular, is currently dealing with tight supply conditions and relatively escalating feed costs. This contrast to the North American West Coast business where margins are expected to remain strong during 2 half '21. In India, despatch volumes improved by nearly 45%, and BlueScope's equity share of profit doubled over 2 half '20, which was impacted by the government-mandated shut. And that business has been performing well, but we are expecting some moderation in activity in 2 half '21, when we'll be conducting a longer-than-usual maintenance program. At Buildings North America, the strong contribution from the BlueScope Properties Group has led to a substantially higher EBIT result of $71 million. The increased contribution from the building properties group of $48 million in the half due to the project timing isn't expected to be repeated in 2 half '21. It's worth noting that we've been developing the properties business for a number of years. In the early days of the pandemic, we did slow activity substantially, which has constrained the near-term pipeline for this business. We are, however, now looking to rebuild the property's pipeline, supported by strong demand for industrial properties. Outside of property group activities, the core Engineered Buildings business delivered a stronger result over the prior half, mainly due to improved performance on cost. Given COVID impacts on order intake from 2 half '20, we haven't seen the typical pickup in first half volumes, with first half despatches relatively stable to 2 half '20. Order intake has since sharply recovered, although rapidly escalating steel feed costs will constrain the benefit in the near term. The New Zealand and Pacific Islands business also delivered a significantly improved result with underlying EBIT of $57 million in 1 half '21. Domestic demand showed a strong recovery, particularly in construction and infrastructure, a dramatic improvement on 2 half '20, which was heavily impacted by the March COVID-19 government-mandated shut. Margins improved with a strong focus on costs and lower coal costs for the period. The business also benefited from reduced depreciation of approximately $20 million on 2 half '20 due to the asset write-down which was made in the prior half. The New Zealand strategic review has also been completed, and we are in the process of exiting a range of loss-making products. Notwithstanding the strong demand environment, we are committed to delivering the changes and providing certainty to our customers and our people. And we anticipate that at least 80 to 100 people will have left the business by the end of FY '21. Turning to the underlying EBIT group walk forwards. On the left-hand side, performance improved on the prior corresponding period, driven by improved realized spreads, principally reflecting lower coal costs, including the improved contribution from export coke sales and lower cost external steel purchases. We also saw improved volumes reflecting robust demand conditions across Australia and New Zealand and improved demand conditions across the Building Products business. Cost and productivity performance was also strong. And of course, the result included the strong contribution from the BlueScope Properties Group. On the right-hand side, with performance compared to 2 half '20, we saw a similar theme with improved spreads principally reflecting lower coal costs and lower-cost externally purchased feed. Volumes were up substantially, reflecting the recovery from COVID-related shut impacts in 2 half '20 as well as stronger domestic demand conditions across many of our markets. Productivity was also strong with positive performance on conversion costs. Good performance on productivity is probably a little masked by some temporarily higher conversion cost that we experienced at the back end of 2 half '20 in ASP, which flowed through the P&L in 1 half '21. And of course, again, the positive impact from the BlueScope Properties Group. Turning now to the financial framework and key financial indicators and settings. The financial framework was key to our success in managing the business through the COVID-19 environment, and we feel it positions us well to manage through the peaks and troughs of the cycle. By way of recap, we have 3 key focus areas: firstly, in delivering returns greater than our cost of capital and maximizing free cash flow generation through the cycle; secondly, we seek to maintain a strong balance sheet and credit metrics, giving the ability to weather cycles and providing the capacity to deliver on value-accretive opportunities; and finally, we remain disciplined in our capital allocation, balancing shareholder returns with investing for long-term sustainable growth. And as Mark touched on, whilst market conditions are currently strong, we are very mindful of the current volatility and ongoing uncertainty from COVID-19. With approximately AUD 600 million of cash outflow anticipated on the North Star expansion project, we have prioritized the allocation of capital to the North Star expansion project at this time. And we anticipate these conditions should improve, particularly as vaccination programs are rolled out globally in the coming months, and we'll be revisiting the question of capital management in August. Group ROIC on a 12-month basis was an improved 11%, driven by higher spreads and volumes at ASP and North Star, along with improved performance at Building Products, Buildings North America and New Zealand. Performance at North Star and the group overall was clearly impacted by weak first quarter conditions in North America. North American spreads have changed dramatically since Q1 and are running at record levels in the early part of the second half, and I'll touch on this again when we come to the outlook. Turning to cash flow. Stronger spreads and volumes assisted the group in generating a solid cash flow of $433 million for 1 half '21 before investment in the North Star expansion project. Working capital increased on typical seasonality, and net finance and tax payments remained relatively modest. And I'd also note that we still have around $1.1 billion of tax losses in the Australian tax consolidated group, which means that there will be no Australian income tax payments until these losses are recovered. Turning to our capital structure. The balance sheet is in a very strong position of $305 million net cash. Again, we're comfortable with this prudent position, given we still have some AUD 600 million cash spend remaining on the North Star project. Liquidity remains in excellent shape at over $3 billion, and our maturity profile remains prudent with syndicated and inventory facilities remaining undrawn at 31 December '20. On capital expenditure, you can clearly see the pullback in discretionary capital we flagged during our last results announcement, with 1 half '21 CapEx, excluding the North Star expansion, totaling $119 million, aligned to the guidance that we provided. Capital on the North Star expansion was just under $300 million for the half. In light of improved, albeit volatile conditions in 2 half '21, we expect to catch up our sustaining capital spend, returning it to a normalized level of just under $300 million of sustaining spend per annum. This is clearly a priority given the pace at which many of our manufacturing units are currently operating. Foundation and growth capital are also returning to a more normal level. In terms of the North Star expansion, the numbers you see on the chart are the accounting basis of capital earned value, which reflects the value of work done, and it differs from actual cash outflows through capital creditor movements. To keep it simple, in terms of cash payments, we have approximately USD 450 million remaining to be spent, of which approximately $230 million is anticipated for 2 half '21 and then the balance of the project in FY '22. And you'll see that we've inserted some supplementary information at the back of this pack around capital and cash flows on the project. Turning to shareholder returns. As Mark flagged, the Board has approved the payment of a $0.06 per share interim dividend. As a highly value-accretive project, our capital allocation focus remains on the large-scale North Star expansion project. And whilst we have a robust balance sheet and market conditions are currently strong, there remains a backdrop of uncertainty, and hence, the buyback program remains on hold for now. Finally, I'll touch on the outlook across the individual segments before handing back to Mark. For ASP, we expect a better result than 1 half '21, with similar to slightly higher domestic despatches on ongoing robust construction demand and stronger benchmark spreads. Given the near-term strength in coke markets, we also expect a higher contribution from export coke sales in the second half. At North Star, we expect a stronger result than 1 half '21 on higher benchmark spreads, although the rise in realized spreads won't be quite as strong as the pure benchmark movement. A reminder that the index, which is based on small parcels, is only an indicator of market price movements and is not necessarily representative of longer-term trading arrangements with an established customer base where a variety of pricing bases are used, including quarterly based mechanisms and longer. For the Building Products segment, we expect a softer result overall. The North American business is expected to be moderately better than the last half on strong margins. However, we anticipate margin compression from higher steel feed prices will impact ASEAN and India. China will be impacted by typical unfavorable seasonality. For Buildings North America, we expected a -- expect a lower result to 1 half '21. The key here is that we expect no contribution from the Properties Group on project timing, following the strong performance in 1 half '21. Rapidly escalating feed costs will also constrain performance in the near term. In New Zealand, we expect a similar result to 1 half '21 and likewise for corporate and in segment contribution. And with that, I'll hand back to Mark. -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Tania. Now turning to the group outlook. As Tania has flagged, at the beginning of the second half of FY '21, order and despatch rates in our key markets remain robust. Spot steel spreads in North America are materially higher than both the first half FY '21 and longer-term averages. It remains uncertain whether these conditions will be sustained through the second half due to volatile macroeconomic and market factors, including potential impacts from COVID-19, which could disrupt demand, supply chain and operations. Accordingly, the company expects underlying EBIT in the second half of FY '21 to be in the range of $750 million to $830 million. Expectations are subject to spread, foreign exchange and market conditions. To summarize, these results show again that BlueScope is a very different type of steel company, one that is uniquely positioned to grow and deliver across our major markets. We believe that we have a high-quality global asset portfolio with demonstrated operating leverage and a dedicated and agile team of 14,000 people. We have a strong balance sheet and cash flow supported by strong financial disciplines. We're well positioned for emerging trends toward lower density and regional housing and the need for e-commerce and logistics infrastructure. We're focused on successful completion and commissioning of the North Star expansion project, which will provide compelling value and growth in FY '22, '23 and beyond. We continue to demonstrate the quality of the Australian business and the earnings and cash it generates, and we've commenced the pre-feasibility assessment for its next chapter, a possible reline of the #6 blast furnace. And very importantly, we remain firmly committed to transitioning our business to a low-carbon future as further demonstrated by today's announcements. We look forward to updating you on our plans later in this calendar year. Thanks for your time this morning. And with that, I'll turn it over to Q&A. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Jack Gabb from Bank of America. -------------------------------------------------------------------------------- Jack Gabb, BofA Securities, Research Division - Associate [2] -------------------------------------------------------------------------------- Mark and Tania, just 2 questions from me. The first is on ASP. If we think back to your initial guidance for the half just gone, I guess the concern was that demand was being pulled forward from this half. And that doesn't really, I guess, appear to have happened. So can you just comment on whether you think Australian demand is kind of out of the new normal? Or are we due a bit more normalization later in 2021? And then the second one is just on North Star. With the expansion tracking well, can you just remind us what is required to fully utilize the additional 1.4 million tonnes of incremental melt capacity? And I guess the constraint is the hot strip mill. So is it just a case of debottlenecking, which is a relatively small CapEx? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Jack. So yes, look, we've been very pleasantly surprised by the ASP volumes, and that's been a mix. We've obviously had really strong alterations and additions. So that surprised us on the upside. We also had a pretty good underlying level of starts. And then we've seen, obviously the bump in approvals on the back of the HomeBuilder. So I would say to you we haven't yet seen the volume for the HomeBuilder flow through. That might be different from other players in the market. But from our perspective, we actually haven't yet seen that bump from HomeBuilder flow through. So if I listen to what our customers are saying to us, our building customers, they have strong order books, Jack, for another year. And that's about as much visibility as they would typically have. So we forecasted a strong second half. I expect that, that will be the case, remembering that this is the strongest half we've had for 10 years. So a pretty remarkable performance. And then on top of that, we've continued to see growth within our businesses, particularly in those areas where we're looking for improved share, the different product suites. So whether it's roofing in particular in Sydney and Melbourne, where we've had more success framing, not dramatically different this half, but continues to grow for us and great prospects. So I think a strong second half again from ASP, and you're right. I'm yet to see any pull-forward impact that I think would negatively impact the volumes. On North Star, yes, about 1.4 million of melt capacity with the new EAF, about 850-odd thousand as part of the expansion to fill out the hot strip mill, the next stage of that expansion should we choose it, would require some capital in the hot strip mill, nothing in the order of the USD 700 million we're spending, obviously, expanding. And we'll think about that when we get to the right point in time. But first objective is we get this project done, get the 850,000 tonnes through the hot strip mill, fill it up and place it in the market. So that's where the focus is immediately for the next year or 2, but we certainly have that capacity to grow further in North Star with about another 0.5 million tonnes. -------------------------------------------------------------------------------- Operator [4] -------------------------------------------------------------------------------- Your next question comes from Nick Herbert from Crédit Suisse. -------------------------------------------------------------------------------- Nick Herbert, Crédit Suisse AG, Research Division - Research Analyst [5] -------------------------------------------------------------------------------- Mark and Tania, 3 for me, please. Just seeing on ASP and looking at the volumes and the increase in the penetration of the higher-valued painted and coated products that you mentioned as a percentage of the total despatches, can you just talk through the drivers of that, please? Is that a function of roofing, alterations and additions? Just trying to get a sense of how sustainable that sort of improved sales mix is. -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [6] -------------------------------------------------------------------------------- Yes, it is, Nick. So that's alterations and additions that surprised us more than we expected, and that is the sit-at-home effect. People are thinking about their amenity at home, making alterations and additions. That really suits itself into those higher value-add areas. Reasonable level of home starts. Of course, that's good from a COLORBOND perspective as well, rainwater goods. And also, as I touched on, our continued push into some of those markets where we think we're underrepresented in COLORBOND, like the big metro markets of Sydney and Melbourne, we've seen some success there. So they're all of the factors that are driving that mix to value product. -------------------------------------------------------------------------------- Nick Herbert, Crédit Suisse AG, Research Division - Research Analyst [7] -------------------------------------------------------------------------------- Okay. Great. And then on the reline, you've previously mentioned becoming an importer of substrate when you looked at that Port Kembla assessment a few years ago. Just wondering if that is still a viable alternative and something you'll be looking at a feasibility study or if that's off the table? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [8] -------------------------------------------------------------------------------- Look, we've looked at all of the options, Nick, where we got to back in '14, 15, with getting the cost base of Port Kembla to where it is was enough to justify. And hindsight's a wonderful thing, but we were proved correct in terms of maintaining steelmaking. The team at Port Kembla have done a remarkable job, in my view, over the last 5 to 10 years to transform that business. It's got a very good cost position. You saw in Tania's walk-through the continued focus on cost and productivity. The blast furnace is running flat out. Our lines are full. So that's good in terms of the overall productivity and cost per tonne of the plant. I don't believe that importing is a viable scenario at this stage. If we were to lose our cost advantage, then clearly that would be the case. Given where we are in current steel markets right now, I'm pleased I'm not importing hot-rolled coil to supply the domestic market because that comes with a lot of warts on it, quite frankly. So at this stage, my answer would be no, not a viable alternative, given where we've got the cost position of PK. -------------------------------------------------------------------------------- Nick Herbert, Crédit Suisse AG, Research Division - Research Analyst [9] -------------------------------------------------------------------------------- Okay. And then maybe just a couple on North Star. Just the spread realization and you've spoken to the element of longer-dated contracts sort of the quarter up to 12 months. Just wondering if there are any other limiting factors in achieving that full year considerable spread just outside of sort of contract term pricing. If you're looking at where spreads are at the moment, they look to be above what is implied in your guidance assumptions. So just trying to get a sense of how much of that elevated spread could be realized if they do persist at these levels for a bit longer. -------------------------------------------------------------------------------- Tania J. Archibald, BlueScope Steel Limited - CFO [10] -------------------------------------------------------------------------------- Yes, maybe I'll take that one, Nick. So the pricing and spread assumptions have been a bit of a moving piece, quite frankly, just given the speed and how far up prices and spreads have gone. Just in terms of more generally how we set our assumptions and our outlook, we do look to a range of the external credible forecast, as we look at crew, we look at consensus economics, we look at forward spot, and we have a look at what's actually going on in the market. So there's a range of data points that we're looking to. They're all in a decline at the moment. In terms of the very specific question around the level of realization, there's nothing else that's sitting out there. We really do follow those data points. What it really comes back to is, again, at those very high levels, you don't get 100% translation one for one because we do have a variety of pricing mechanisms out there as the quarterly basis and longer. And whilst they're a minority of the book, they clearly have an impact, particularly when you're in this very, very high-price environment. -------------------------------------------------------------------------------- Nick Herbert, Crédit Suisse AG, Research Division - Research Analyst [11] -------------------------------------------------------------------------------- Okay. And then final one for me, sort of more market related in the U.S. Just wondering if you have a view on the flat product supply that's due to come back into the market over the next 12 months for the magnitude around that, thinking both from the U.S. and what can freely flow into the U.S. from neighboring Mexico and Canada. And just how much or how material that new supply to come back online is? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [12] -------------------------------------------------------------------------------- Yes. Look, I think Slide 10 is pretty compelling when you look at the pack, Nick. We've called out a year or more ago now when we decided to kick off the North Star expansion that we felt the inexorable trend to EAF from a high-cost, inefficient blast furnace would continue. I think it's fair to say it's continued at a much faster rate than I ever anticipated it would, so I got that forecast wrong as well. I think the consolidation of ownership in the U.S. around the blast furnace fleet is a really positive thing for North Star. AK Steel have gone from 0 to being -- so I'm sorry, Cleveland-Cliffs have gone from 0 to being the largest steel producer in the United States in about a 12-month period, which is a pretty remarkable change when you think about it, and the further consolidation of the EAFs of Big River by U.S. Steel. So less players is a better industry structure for North Star to continue to operate in. We're a -- as you see from that chart, we're a tiny player in this market. But that's actually a pretty comfortable position for us to be given the quality of that asset. So I'm comfortable that the capacity that's come out and has stayed out deserves to be out and shouldn't come back. Capacity that's come out and then been restarted on the back of a growth in volume, I expect that to be -- we understood that, that would happen. But I think, overall, net for net, what you're seeing is a positive market outcome for North Star and the capacity that we're bringing back on. So the way we had hoped it would play out is -- and forecast it would play out is playing out faster than we expected and at a more material rate. So it's a net-net positive for North Star and the expansion. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Your next question comes from Lee Power from CLSA. -------------------------------------------------------------------------------- Lee Power, CLSA Limited, Research Division - Research Analyst [14] -------------------------------------------------------------------------------- Mark, just I would like to hear your view on just how much long do you think a restock could last in the U.S. and maybe your view around where you see inventories for service centers settling. Do you think they end up back at kind of a long run average? Or do you think we're in a market where they're going to end up settling above those levels? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [15] -------------------------------------------------------------------------------- I think that's a really interesting question, Lee. The data that we see at the moment, there's nothing extraordinary going on. Lead times in many -- in mills are extended, up in the 8 to 9 weeks. So that's the higher end of averages. Service center volumes are in the high 1.5% to 2%. 1.7%, I think, is the last number that I saw recently. And that's just a little bit below the sort of long run averages. We've had the semiconductor issue that's had an impact on the automobile industry. It hasn't really affected us materially. But the feedback generally we're getting, Lee, is that supply chains are tight. And no one's had the opportunity to rebuild or create excess stock. It's why we're seeing short-tonne hot-rolled coil prices at $1,200 a tonne. I mean no greater indicator of how tight supply chains are than that number. So I haven't seen -- I don't expect in the short term, unless something dramatic happens from a COVID perspective or some other event, that we would see a situation where there'd be a massive rebuild of inventory or supply chains. Quite frankly, at the moment, it's pretty much hand to mouth. Wherever we're operating, whether that's in ASEAN, in North America or Australia and New Zealand, it's pretty much hand to mouth. So I expect that these tight conditions will last for the next half, which is what we've guided to. Beyond that, it's too early for us to call. But no, I don't think anything unusual is going to occur in the next 6 months around supply chains or inventory levels. -------------------------------------------------------------------------------- Lee Power, CLSA Limited, Research Division - Research Analyst [16] -------------------------------------------------------------------------------- Okay. And then just your comments around ASP and HomeBuilder stimulus really starting to flow through into the second half, it just kind of makes the commentary that you've got in there around similar to slightly higher domestic despatches seem quite conservative. Like when your customers are saying they've got like 1 year order books, can you give us an idea of what they're talking around in terms of growth? Or kind of if you can quantify what you've got actually factored in, in slightly higher? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [17] -------------------------------------------------------------------------------- Yes. We're coming off a 10-year high, 6-month period for volumes, and I'm guiding you to slightly higher. I probably can't get much more enthusiastic than that. Maybe it's the tone. I'm sorry, but I don't know that I want to go out totally on a limb, but you've got a 10-year record domestic despatch year. We're running at an annualized rate of 2.4 million tonnes. I remember not that long ago when that was 1.7 million. So that's a material change in our market. And also, there's just the ability to supply. I mean, one of the challenges we've been facing in the last 6 months is actually getting steel out. And again, back to my comment about supply chains being tight, that goes right through logistics, transport, the whole lot. I can't get steel out any faster than we're getting it out now. The team at Port Kembla are doing remarkable stuff to shift the material that they're shifting. We've had to go back to shipping routes. So we're doing things that we haven't done for a long time. So I'm sorry if I've given the wrong impression. We're at a really strong level of activity, and I'm guiding it to be slightly higher. So I'm not sure that I'd necessarily classify that as super conservative because I'm actually not sure what -- how much more we could do because we are currently constrained across the supply chain. -------------------------------------------------------------------------------- Tania J. Archibald, BlueScope Steel Limited - CFO [18] -------------------------------------------------------------------------------- Maybe if I could just add this, maybe just thinking about the second half, there probably will be, in terms of the relative mix, you'll probably see a bit more of the new build and a bit lease of the A&A because there was certainly a big pull forward in A&A activity. And it's really the new build. And if you look at the HomeBuilder stats, if you assume a roughly 3-month lag in terms of those applications going in, that's why we think there might be a bit of a skewing of the mix away from that sort of A&A and more towards new build. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Your next question comes from Lyndon Fagan from JPMorgan. -------------------------------------------------------------------------------- Lyndon Fagan, JPMorgan Chase & Co, Research Division - Analyst [20] -------------------------------------------------------------------------------- Look, the first question is just on Port Kembla. In relation to South32 Dendrobium extension project getting knocked back, just wondering if you can talk a bit about what that means for Port Kembla from a cold raw materials point of view and whether you would need to invest in import capacity? I've got a follow-up after that. -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [21] -------------------------------------------------------------------------------- Yes. Thanks, Lyndon. Look, you would have noted, and you know this well, you would have noted that we were -- we provided a submission to the independent planning commission. We're supportive of that expansion. There's no immediate issue for us to deal with. What we're talking about here with South32 and their expansion is 2024, as I understand it and beyond. So there's no immediate issue from a Port Kembla perspective. But again, as you know well, local supply of coal is a good thing for Port Kembla, which is why we're supportive of the expansion project. So we were surprised that the knock-back as obviously South32 were. It's clearly not our plan or our submission. There are alternatives that we could look to. And I think we painted some scenarios in the IPC. But clearly, that was -- that's a situation where we lost local supply. It's in our interest -- it's in the interest -- I think it's an Australian manufacturing interest for that expansion to occur, which is why we were supportive of it. So no immediate issue. But we want options around local coal supply going forward. So that's -- we're watching with great interest where South32 go to with this now. -------------------------------------------------------------------------------- Lyndon Fagan, JPMorgan Chase & Co, Research Division - Analyst [22] -------------------------------------------------------------------------------- And Mark, if it was to just run on Appin and coal and Dendrobium sort of phased away, can you talk a bit about the quality difference and whether you can just solely rely on Appin? Or what is it specifically that might need to trigger an import requirement? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [23] -------------------------------------------------------------------------------- Yes. I mean, again, you probably have noticed better than me, but the quality of the coal there is important in terms of the structure it provides us in the burden of the blast furnace. At the Illawara blend, one of the advantages we've had is it's a very good quality coal. It produces a high-quality coke, which is beneficial for the operations in terms of operating costs. So look, this is not -- it's not a disaster scenario by any stretch of the imagination. And as I said, Lyndon, we've got several years to go before this is even potentially something that we need to think about. But of course, with all of our thinking and planning around assets like blast furnaces and coke, I mean, you got to look forward and think about this from a long-term perspective. So we would need to find another source of coal, and they're available. It's not a scenario that we can't find them, but we need to find other sources of coal that would give us the similar quality benefits that we get from the Illawarra blend. We'd much prefer to be getting it from the escarpment at Illawarra than getting it from somewhere else. So again, we're watching South32's next steps. And anything we can do to support that process, we would. -------------------------------------------------------------------------------- Lyndon Fagan, JPMorgan Chase & Co, Research Division - Analyst [24] -------------------------------------------------------------------------------- And look, just a question on North Star. Just going back to the ability to utilize your installed infrastructure there and expand further. I'm just wondering, given we've got record margins there, the balance sheet is in great shape, you've got a construction workforce on site, why not just go the extra mile and complete the expansion? I imagine the capital intensity would be a bit lower if you did it while everyone was still there. -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [25] -------------------------------------------------------------------------------- Yes. Look it's just capacity, Lyndon. We just don't have the manpower, more than anything else, to deal with it. The expansion to go beyond the 850,000 that we've talked about really goes to cooling power of motors, speed, alignment in the hot strip mill. So there are issues that we can deal with on an incremental basis. We haven't really turned our minds to it yet because we've been so focused on getting this first big lump. But you can be assured, given the economics of that business, that as we get into the commissioning phase and start and ramp up for that 850,000 tonnes, we'll start and turn our mind to what's next. And when we top that out, and this business has got a fabulous record of growing incrementally, when we top the hot strip mill out and we run out of capacity, we'll be in a position to have understood and studied what's required to move to the next level, and you'll see us do that incrementally. So unlike the existing project, it wouldn't be a big stop, shut, massive capital expansion. It's something that we could do in more digestible chunks and incrementally, and we will start thinking about that as soon as we got a bit of head space, quite frankly. -------------------------------------------------------------------------------- Lyndon Fagan, JPMorgan Chase & Co, Research Division - Analyst [26] -------------------------------------------------------------------------------- And just one final one from me. Just on your longer-term growth strategy, we've got a balance sheet that's accumulating a lot of cash. Obviously, there will be a buyback restarting in the not-too-distant future. But beyond North Star, can you talk a bit about what your long-term growth ambitions are given the company's in great shape to now pursue something? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [27] -------------------------------------------------------------------------------- Yes. So right now, we think North Star is the right place to put our dough, and that's the focus on that over the next 12 months. If I can -- if we can get that asset done and dusted and paid for and still have the balance sheet in a strong position, that puts BlueScope in a very, very enviable position, and that's really part of our objective. Now having said that all along, we clearly think that there's great opportunity for us to continue to grow, particularly in North America. So our focus hasn't changed. North America is a target market for us. We're continually looking and interested in those sorts of areas that we believe we can bring some capability and some skill, but there's just not anything that's emerged at this point in time. But we have the capacity to do it. We're not in any hurry. We don't want to overpay. And at the moment, asset prices are in a pretty interesting space. So whilst we keep looking, and we have great optionality, given the strength of the balance sheet, as you point out, there's nothing that's imminent. But clearly, North America is an area where we think there'll be opportunities that emerge, and we'll be in a fantastic position to take advantage of them. -------------------------------------------------------------------------------- Tania J. Archibald, BlueScope Steel Limited - CFO [28] -------------------------------------------------------------------------------- Probably also just worth pointing out, yes, we have gone outside of our normal parameters when it comes to the balance sheet. We've clearly said that whilst we do want to have a strong balance sheet, we are targeting a net debt position of around $400 million, but that is really driven by the unusual circumstances that we're in at the moment, undertaking the biggest capital project that we've ever had and still with quite a long way to run on that project. And of course, the very unusual conditions that we're currently operating. So again, that is clearly something that we'll reassess across this half and in August. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- Your next question comes from Simon Thackray from Jefferies. -------------------------------------------------------------------------------- Simon Thackray, Jefferies LLC, Research Division - Equity Analyst [30] -------------------------------------------------------------------------------- Mark and Tania, my most urgent question is on -- from Slide 38, the question deck. I just presume these rather magnificent cliff-side resorts in Australia, can you confirm if they're taking holiday bookings in the current environment? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [31] -------------------------------------------------------------------------------- Well, if you live in Victoria, mate, you get a van that you could use in going -- that would cost you even less. So that's probably booked out with Victorians right now, I suspect. -------------------------------------------------------------------------------- Simon Thackray, Jefferies LLC, Research Division - Equity Analyst [32] -------------------------------------------------------------------------------- You might be wrong. We can come back to that. Now ASP, you make the comment, both of you, that it's running flat out, and then the folks at (inaudible) doing some amazing stuff. But if your despatches feel like they're running out or close to capacity domestic, that is in the current environment, is there a cap in the second half to what you can achieve, notwithstanding the strength of the demand and the mix that we're talking about between A&A and new? I mean, are we going to be capped? I know they're very good at finding places to get tonnes out. But are we going to be capped in the second half '21? And then I guess when we look at then your mix of domestic versus export, I mean, is there the opportunity to take a few more tonnes out of export locally? I'm just trying to think this through, given it is running so hard in ASP at the moment. -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [33] -------------------------------------------------------------------------------- Yes, you're right. They're very good at finding ways to get a bit more out and get it into market. They continue to surprise and impress me. It's running at a pretty strong level, Simon, and we're very happy about that. We've guided for it to be better. We still do have capacity with the export volumes, and we are still pursuing aggressively the organic growth projects that we've got on foot. So growing share, as I mentioned, in Sydney, Melbourne and roofing, continuing the push in framing, thinking about how we grow. We've got the second true spec line up and running, how we continue to grow in that space. Quite a sophisticated strategy is being developed and rolled out in our black steel, which we haven't had as much focus on. I say that without any disrespect. The team have really focused in the last 12 months or so on. What else can we do with black steel and that goes to bridges and infrastructure and wind towers and all those sorts of areas as well. So whilst ever I'm sending a tonne offshore, Simon, you know the economics, I'd much rather be selling it in Australia. So there's still room for us to move. But we are just mindful of the fact that we're at a record volume for the last decade. We've signaled that we think it will get a bit better in the second half, but there's still lots of opportunity for us to continue to grow domestically, which is encouraging. -------------------------------------------------------------------------------- Simon Thackray, Jefferies LLC, Research Division - Equity Analyst [34] -------------------------------------------------------------------------------- Yes. So that's therefor, I guess, the answer to the sort of second part of that question, which is you're not really worried in the current environment about the imported tonne becoming the marginal cut in payment tone that makes the market because you can't supply. You're happy to continue to say you you'll be able to protect and grow your market share? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [35] -------------------------------------------------------------------------------- Yes, we've still got capacity. We're running flat out and busy, but there's opportunities to change shift patterns and think about how we do things differently. But yes, whilst we're busy, we're not running out of capacity at this stage. -------------------------------------------------------------------------------- Tania J. Archibald, BlueScope Steel Limited - CFO [36] -------------------------------------------------------------------------------- Just to be clear, it's really import markets that suffer. And we don't just sell export hot-rolled coil. We're selling metal coated and painted products. So they're the areas that tend to suffer when you've got very strong demand. -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [37] -------------------------------------------------------------------------------- Yes, they become the flex, which doesn't always make them happy. But from an economic perspective, it's clearly the best decision for us to make. -------------------------------------------------------------------------------- Simon Thackray, Jefferies LLC, Research Division - Equity Analyst [38] -------------------------------------------------------------------------------- Absolutely. No, that makes sense. And then we talk about regional exposure. And I think, Tania, you referred to it before as well, that you tend to outgrow in those regional areas. And TRUECORE and COLORBOND performance has obviously been good. If we think about sort of this regional growth in Australia, based on the geographical mix that you guys enjoy, does that mean that you feel with your regional exposure that you would otherwise outgrow the national market in your coverage, if you like, against your R&R and -- or sorry, A&A and new resi exposure? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [39] -------------------------------------------------------------------------------- Well, our -- maybe this answers the question. Our shares are much stronger in regional and the smaller capital cities than it is in Sydney and Melbourne, which is why we've had a couple of programs around Sydney and Melbourne specifically, but we have a much higher share of new roof in regional Australia. The product transport well -- transports well. It suits the sort of architectural requirements. It works from a climatic perspective. So more growth in regional is a good trend for us given our relative share position compared to other building products. -------------------------------------------------------------------------------- Simon Thackray, Jefferies LLC, Research Division - Equity Analyst [40] -------------------------------------------------------------------------------- Cool. And then I just want to quickly turn to longer term, and it was referred to earlier, ASP cash flow generation is pretty formidable. You can consider alternative steel-making methodologies. Can you just help me understand, however, if your campaign for blast furnace 5 ends 2026 to 2030 at that's the window, when do you get cert here, if you like, when that campaign ends, to know when to start the CapEx? Let's say it's decided that BF 6 is a goer, and that's what you're going to pursue. Like how much early does it start? And how certain is the start relative to that campaign window? In other words, if it suddenly became 2026 that that's definitely when the campaign ends, when would you have to start the CapEx on blast furnace 6? Is that where they approve synergy? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [41] -------------------------------------------------------------------------------- That's a good point to pick up. I mean, we're currently planning for '26 to '30 as the window. So what we're really saying there is that as we continue to monitor the performance of the blast furnace in -- and it's been quite a campaign for this blast furnace. We've had the copper stave issues, which you guys have been on the journey with us. There was half a dozen start -- stops and starts in that, which none of those are good for the blast furnace. We've talked to you about that previously. That doesn't help the blast furnace. Also, there's been a large amount of liquid that's gone through that blast furnace both in terms of iron and slag. And as we changed some of our mix for a better cost position early in the -- early in the period where things were a bit tougher, that meant volume or liquid through the blast furnace, and that's what determines its life. So the team at PK are monitoring this on a daily basis. It's a bit organic. You obviously can't get inside it, so you don't know exactly, but there's a myriad of monitoring processes the team in Port Kembla go through to make sure that the blast furnace will continue to operate reliably and safely. What we're currently planning for, though, on that window is to be in a position where if we need iron make from 2026, that is replace #5 with #6, if that's what the pre-feasibility results in, then it would be available by 2026. So that would mean you'd start and see some capital spent in '23, '24. We haven't gone to the point of understanding the amounts in terms of phasing or years, but we've given you an indicative number in terms of the total reline cost, but that's when you'd start and see some capital being spent, mate. And as you picked up in our commentary, clearly, the very positive cash and EBIT performance of ASP means that if we got into a -- if #6 was approved and we got into a campaign life of that blast furnace, which would, again, indicatively last 20 years, if a new technology emerged, the payback on a reline, given the performance of ASP, is not anywhere near the 20-year life of that campaign. So we would have the option to change if and when a technology became commercially and technically viable. So that's really what we're signaling there. That's well picked up. -------------------------------------------------------------------------------- Operator [42] -------------------------------------------------------------------------------- Your next question is from Peter Steyn from Macquarie. -------------------------------------------------------------------------------- Peter Steyn, Macquarie Research - Analyst [43] -------------------------------------------------------------------------------- Just 2 quick ones probably for me. Just wanted to pick up on the commentary in relation to U.S. spreads and what do you expect to pick up relative to benchmark. Are we to think that the historic discount to benchmark, I guess, you've always quoted that late single digits in percentage terms, does that increase or how we to think about that from a second half perspective? -------------------------------------------------------------------------------- Tania J. Archibald, BlueScope Steel Limited - CFO [44] -------------------------------------------------------------------------------- It's more a question around what's really sitting in the sales book in the point in time that you're renegotiating, so there are -- it really comes back to a more generalized answer, I'm sorry, Pete, it's more around -- there are quarterly accounts in there. There are some which are there longer at a longer basis. And therefore, it dampens the effect that we have right now. -------------------------------------------------------------------------------- Peter Steyn, Macquarie Research - Analyst [45] -------------------------------------------------------------------------------- Yes, I understand that. I guess I'm just trying to understand just how deeply that discount may wash up relative to or as a result of those quarterly contracts and other factors that -- yes. -------------------------------------------------------------------------------- Tania J. Archibald, BlueScope Steel Limited - CFO [46] -------------------------------------------------------------------------------- Yes, I understand. It really is a minority of the book, though. So the majority of the book is fill on that monthly line, but there's a minority of the book, where there's a portion of them on quarterly or longer. And we're not actually going through the specific breakup of the sales book. -------------------------------------------------------------------------------- Peter Steyn, Macquarie Research - Analyst [47] -------------------------------------------------------------------------------- Sure. No worries. That's fine. And then, Mark, was just keen to hear your thoughts on safety performance, given that your total recordables have been hitting in slightly incorrect direction. Perhaps just a couple of thoughts there on what you guys are looking at and doing about that. -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [48] -------------------------------------------------------------------------------- Yes. Thanks, Pete, and an important metric. Thank you for calling it out. And it is going in the wrong direction, which is why I'm not happy with it. We're investing a lot of time and effort into this space, 123 injuries in the half. That's about our normal run rate. We had a slight reduction in hours work, which didn't help the TRIFR number. There, predominantly, and I say this touching, would there predominantly cuts and sprains and strains and abrasions and lacerations. So frustratingly annoying injuries, but injury none the same. We're really spending a lot of time and effort, a, building capability. So we've had 650-odd people through a 3-day training workshop with a guy called Dr. Todd Conklin, who is helping us in terms of how we approach what happens. He calls it the blue line and the black line, what you think people are doing and then what they're actually doing. I've been through it. The whole ELT has been through it. In fact, the Board have sat through it, which has been terrific in terms of building capability. But it is frustrating, and we're not happy with it, Pete. I would call out, though, that the severity measure is declining, and we're focusing a lot of effort around those critical risks that can significantly impact people's lives or create process risk situations for us. So it continues to be a challenge, but I'd love to see that trend turning around, and it's certainly not for the want of trying, but there's more effort and more we need to do to get that trend arrested. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- Your next question comes from Paul McTaggart from Citigroup. -------------------------------------------------------------------------------- Paul Joseph McTaggart, Citigroup Inc., Research Division - Director and Metals & Mining Analyst [50] -------------------------------------------------------------------------------- So I just want to circle back on #6 blast furnace. So in terms of options you might have, so if we -- let's say, it's got to come online 2026, which means you're spending money '23, '24, which means you sort of need to be doing engineering work relatively soon, I guess. If Dendrobium isn't there beyond 2025, do you have -- have you got enough flexibility to be looking at some alternative sort of coke displacements, perhaps, like biomass? I mean, have you got that capability within your planning? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [51] -------------------------------------------------------------------------------- Yes, we have, Paul, and thank you for pointing that out. Clearly, so -- and I've got Owen who can't get through and one of his questions was around the campaign life of #6, what was left and what's it mean going forward. And there's a couple more I'll cover at the end, Owen, if you can hear us, even though you can't get through. But yes, that is absolutely the case, Paul. And part of the assessment of #6 would be what are the technologies that we can set #6 up for to take advantage of if and when they emerge, bio charge is one of those. It's on the agenda of things that we're looking at. Hydrogen injection is another one. Coke ovens gas injection is another. There's recovery systems at the top of the #5 blast furnace that's, in fact, not on #6. So #6 came into life in 1996, and then we shut it in 2011 because #5 had been relined in 2009. So it was the newest blast furnace. If I have time over again, we probably might have made a different decision with what we know now about copper staves we went through at the time. But we shut #6 because it was the older blast furnace. So we will have the opportunity as we assess the #6 reline to think about all of the technologies that are currently available or that are emerging that we could apply to the blast furnace reline. So that is absolutely part of the project assessment that we would undertake. -------------------------------------------------------------------------------- Paul Joseph McTaggart, Citigroup Inc., Research Division - Director and Metals & Mining Analyst [52] -------------------------------------------------------------------------------- Okay. And I mean, it's probably too early to say, but do you have any sense of how much coking coal you might -- you possibly might be able to displace if you have a problem with Dendrobium supply? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [53] -------------------------------------------------------------------------------- Yes. Sorry I missed your Dendrobium point. I apologize for skipping that. I wasn't skipping it deliberately. Look, it's too early to say in terms of the absolute number. But we do have alternatives. What we've said about Dendrobium is it would be preferred from our perspective to have our coal supply continue to be local. But it doesn't mean that we have to stop if that doesn't work. We can import coal. There's lots of sources of coal from other parts of the world that we currently use as well. Our preference would be for Dendrobium to go ahead and for us to continue to have the Illawarra blend as our predominant coal supply. So it's not like that's game set and match for us if Dendrobium doesn't go ahead, but it's our preference that Dendrobium does go ahead. And the work we will do on #6 will be all about thinking about how do we reduce the amount of coal or PCI or whatever it is in the blast furnace, what technologies can we use to reduce both the absolute level of greenhouse gas emissions, but also the intensity level. -------------------------------------------------------------------------------- Operator [54] -------------------------------------------------------------------------------- Your next question comes from James Brennan-Chong from UBS Investment Bank. -------------------------------------------------------------------------------- James Brennan-Chong, UBS Investment Bank, Research Division - Associate Director and Mining Associate Analyst [55] -------------------------------------------------------------------------------- Just sticking on to the theme of the reline of blast furnace #6. Just in terms of these technologies that are on the horizon, can you just talk about how you stay close to these types of emerging technologies to ensure that these technologies become an option for any future of the reline? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [56] -------------------------------------------------------------------------------- Yes. Well, I mean, a great segue. Thank you for doing that, mate. Gretta's appointment is a really important appointment for us as an organization. This is the first time we've had a leadership team role that is going to be focused solely on climate change and what it means for us as a steelmaker. So we're currently in the process of thinking about the team that we put around Gretta. She will think about and work with other parties that are investigating technologies around the world. We've got great relationships with many of the big steel players, ArcelorMittal, Nippon, Tata, through our joint ventures. We're active participants in World Steel, things like ResponsibleSteel, a founding member of that and currently going through the ResponsibleSteel certification process at Port Kembla, which will complete this calendar year. So without blowing our trumpet too much, we tend to punch a little bit above our weight because we are a Minnow from a steel perspective, but we tend to punch a little above our weight and get access to those big guys so that's going to be a key part of Gretta's role and Gretta's team's role is to focus on what are emerging technologies. That leaves the team at Port Kembla to focus on all of the good work they've been doing around what do we do to make a reline as greenhouse gas efficient as it possibly can be, what are the known technologies, how do we build that and engineer that into the project. And equally, we have a challenge across the New Zealand business in North Star. So our carbon challenge is not just focused on Port Kembla. And the broader piece that Gretta will focus on also includes things like public policy, financing, renewables, offsets, the broader range of abatement opportunities for us. So that's really where her focus is going to be. As I said, we're in the process of building a small team of subject matter experts around her, some from within, some from without. But it frees up and gives us a global focus, which we've never had before. And that's why today's announcement around Gretta is such an important announcement for us. So good opportunities for us to think about what it means in the broader scheme of things for BlueScope for our carbon challenge across all 3 of our steelmaking businesses, not just Port Kembla. -------------------------------------------------------------------------------- James Brennan-Chong, UBS Investment Bank, Research Division - Associate Director and Mining Associate Analyst [57] -------------------------------------------------------------------------------- And when you think about the reline and the future of Port Kembla, from an emissions perspective, do you have any targets for where you would ultimately like to be in terms of, is this going to be an incremental reduction in CO2 emissions? Or do you have some larger aspirations to have a more meaningful reduction in CO2 emissions? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [58] -------------------------------------------------------------------------------- Yes. I mean, good point. I mean, we have external targets right now, where we're targeting the 1% reduction in intensity year-on-year, which equates to about 12% overall to 2030. We forget too quickly, I might add, that back in 2011, when we painfully shut #6, that was a 40% reduction in greenhouse gas emissions from Port Kembla. So a significant reduction has already been incurred by that business. And effectively, that was because there was too much steel being produced. So we've done our bit out of Port Kembla already in terms of our emissions reductions. That doesn't mean we stop, which is why we've got our targets set on the annual intensity reduction. And we're also now in the third year of our 3-year target program, which was the emissions intensity. There's a lot of work going on inside the organization about what our next targets will be, and we'll release those later in the year as we complete them around our 2021 sustainability report. But I think it's fair to say, without a change in technology, at this stage, it's incremental improvements around the blast furnace. And again, just remember, 75% of world steel production comes from the blast furnace route, and it's a route that is full of brand-new blast furnaces largely situated in China. So there's great imperative and incentive here for this technology solution to be resolved. And we're going to be very close to the big players that have fleets of blast furnaces, not just one and a mothballed one like we do, we're going to stay very close to those that have a fleet of blast furnaces, and there's great incentive and imperative, as I say, for us to solve this technology problem. And we want to be a part of that, and we want to take advantage of that when it's available. And our balance sheet position, the cash generation of ASP, affords us that opportunity, which is a pretty good position for us to be in. -------------------------------------------------------------------------------- James Brennan-Chong, UBS Investment Bank, Research Division - Associate Director and Mining Associate Analyst [59] -------------------------------------------------------------------------------- Yes, got it. And then just one final thing, just a clarification. So I think at the beginning of the Q&A you said that importing HRC was not a viable alternative. Just wondering, does that mean exiting steelmaking and just being a roll former is completely off the table? Or is that something that is still considered a potential option as we move forward? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [60] -------------------------------------------------------------------------------- Right now, it's off the table because of where Port Kembla has got themselves in terms of the cost position. They're cost effective, and it makes enormous sense for us to be a steelmaker, not only financially, but for a whole bunch of supply chain quality, innovation reasons as well. So right now, it's completely off the table. If we were to lose our cost position and the cost advantage that we have at Port Kembla, then you would have to reconsider that position, but that's not something I expect will happen. -------------------------------------------------------------------------------- Operator [61] -------------------------------------------------------------------------------- Your next question comes from Matt Starick from Red Door Capital. -------------------------------------------------------------------------------- Matt Starick, [62] -------------------------------------------------------------------------------- Just going back to North Star again. I just wanted to clarify. And I guess in the context of your comments, but in your experience there, steel conditions have ever been better in the U.S.A., i.e., all of that is, are margins for North Star even better than you experienced in calendar 2018? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [63] -------------------------------------------------------------------------------- Yes. I think, Matt, if you look at the score board, we've never had hot-rolled coil at $1,200 a short tonne. That's the gold star award. So it's never been that high. It's been extraordinary. And Pete asked earlier about discounts and lags. This is a really difficult period for us to forecast and with lags in. We've never seen hot-rolled coil accelerate like it has. If you look back at the Midwest chart, I think it was August where the hot-rolled coil price a short tonne was $436. It's now $1,200. I mean that's just remarkable. And it's very challenging for us to forecast and manage that. And also, that period of $436 a tonne, people were trying to take orders anyway just to keep their business is operating. Now you can't get hot-rolled coil for love nor money. So it's been quite extraordinary how this has changed in such a short period of time. But yes, right now, on a historic basis, hot-rolled coil has never been at the price it's at, notwithstanding the Trump bump in -- with the 232, notwithstanding 2008, pre DFC, it's never been at this level. So it's about as good as it gets right now. -------------------------------------------------------------------------------- Matt Starick, [64] -------------------------------------------------------------------------------- And I guess I understand the lags and leads and discounts and stuff like that. But I mean, doesn't that just mean you'll get it in the next financial year? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [65] -------------------------------------------------------------------------------- Well, there is a bit of what you miss on the way up, you get on the way down. I mean, this is part of the issue. Unlike an iron ore miner where you just -- you dig it out of the ground and you take the spot price and you move on, our business is way more complicated than that. And to be honest, I'm not unhappy about that. We have customers who need to produce product, get it to their customers, have commitments. So whilst we missed some on the way up, what you tend to find is, as the curve comes off, we don't give it back as quickly as the curve might suggest. And of course, the other benefit we have is, right now, being a steelmaker, you're getting it. Some of our downstream businesses are struggling with margins, but we're taking it at the hot-rolled coiling. So the value here and back to, I think James asked the question about importing hot-rolled core, one of the assessments we were -- we dug into very deeply in 2014, '15 when we thought about getting out of steelmaking is when you sit inside this business and you see the value shift from the hot-rolled coil end to the finished product end, it's quite remarkable how materially and quickly it can shift. And right now, our businesses have the advantage of capturing that. So one can offset the other as we're vertically integrated. But yes, it's certainly an interesting time. We haven't -- I haven't seen anything quite like this in my time in the steel got. -------------------------------------------------------------------------------- Tania J. Archibald, BlueScope Steel Limited - CFO [66] -------------------------------------------------------------------------------- Yes. And it's probably also just worth pointing out that when it comes to those pricing arrangements that sit there at quarterly or longer, it's not as simple as simply taking the 3-month lag. I mean, really, when you're negotiating those arrangements, you're reflecting the commercial conditions at that point in time. So there's a mix of factors that need to be taken into account. And really, the problem that we have at the moment, and it's a good problem to have, is just the speed at which it's gone up and the very high level that it's gone to. -------------------------------------------------------------------------------- Matt Starick, [67] -------------------------------------------------------------------------------- And just in that context, I understand being conservative on the margin and how that all flows through. But on the other hand, with the Biden administration talking about potential stimulus of $1.5 trillion to come and you've got the same administration talking about USD 1 trillion in infrastructure coming as well, I mean, is there an equal or greater risk to the upside? I mean, I get being conservative and I understand all that. But like as you say, I mean, it's already unprecedented what we're seeing, like it's in that context. -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [68] -------------------------------------------------------------------------------- The context you paint there, Matt, is absolutely correct. I mean, there's an extraordinary level of stimulus that's to come, an increased focus on renewables and green energy with the change in administration. All of that needs to be driven by infrastructure, wind towers, solar farms, et cetera, et cetera. So the context you paint is absolutely correct. We're trying to forecast what happens in the next 6 months. And a year ago or 18 months ago, when we were looking at North Star, we were getting questions about, is this the right time to be investing further in North America? Right now, I can't get the North Star project done quick enough, quite frankly, and the team out there are running at 1,000 miles an hour to bring it to market, and we have further capacity beyond that. So I'm really comfortable with where we're at in terms of the investments that we've made and how we sit strategically in North America because I think the context you paint is likely going to mean that we're going to have stronger conditions for a while in North America, whether hot-rolled coil stays at $1,200 a tonne, I've got enough scar tissue to know that things change pretty rapidly. And that's part of our dilemma in terms of trying to forecast the outlook. And when it's at such a high level, it seems extraordinary to think it would stay there or go higher. But the context you paint is accurate. -------------------------------------------------------------------------------- Matt Starick, [69] -------------------------------------------------------------------------------- Yes. Not a bad market if we're bringing it to more capacity into, I guess. -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [70] -------------------------------------------------------------------------------- Correct. -------------------------------------------------------------------------------- Matt Starick, [71] -------------------------------------------------------------------------------- And just one last point. Can you just do me a favor and never mention the copper phase again? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [72] -------------------------------------------------------------------------------- Right, we'll do. Yes. Once we've relined well, sure. Yes, we all do. Thanks, Matt. -------------------------------------------------------------------------------- Operator [73] -------------------------------------------------------------------------------- Your next question is a follow-up from Simon Thackray from Jefferies. -------------------------------------------------------------------------------- Simon Thackray, Jefferies LLC, Research Division - Equity Analyst [74] -------------------------------------------------------------------------------- Just a quick one on export markets. You shifted some -- from hot-rolled coil to CRC to the U.S. I remember when 232 came in, et cetera, now there's some commentary about additional tariffs, et cetera, for the U.S. for cold-rolled coil. What's the status on the end markets for export now in your mix? And has that changed over the last 12 months? And is it likely to change again? -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [75] -------------------------------------------------------------------------------- Well, I mean strong domestic tonnes obviously mean lower export tonnes. We continue to manage our associated companies. So what we send to Asia, what we send to the West Coast, we continue to manage that within what we think are appropriate levels. So there's no material change there made other than, clearly, longer term, I'd rather be exporting less and selling more domestically. So that's our overarching objective. But in the half, just one or the half outlook or looking forward, no material change from an export perspective. -------------------------------------------------------------------------------- Simon Thackray, Jefferies LLC, Research Division - Equity Analyst [76] -------------------------------------------------------------------------------- Okay, that's helpful. And then, Tania, just on the coke for the second half, I appreciate it's going to be higher than the first half. But if you were marking to market now in terms of what you've seen, like how much higher are we talking about? Materially higher versus the first half contribution? -------------------------------------------------------------------------------- Tania J. Archibald, BlueScope Steel Limited - CFO [77] -------------------------------------------------------------------------------- Yes. We don't give a specific number on that one, Simon. But yes, it will be better than the first half. -------------------------------------------------------------------------------- Simon Thackray, Jefferies LLC, Research Division - Equity Analyst [78] -------------------------------------------------------------------------------- All right. Okay. I thought I'd try again. I always do. -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [79] -------------------------------------------------------------------------------- They're all smiling because I try and work out what word she's going to use every half to explain the coke without actually telling you the numbers. She's very good at it. Thanks, Simon. Now just before we go, there are a couple of questions Owen hasn't been able to get through. So there's a couple of questions that I will just shoot through. So firstly, very high production despatched at ASP, is this due to extra scrap? And is it sustainable? The answer is, yes, it is. We're actually at the higher end of scrap injection into the steelmaking process. And the team at Port Kembla are managing that. We're still getting scrap. We've had to bring it from a bit further afield, but we're getting scrap. So we believe it's sustainable at the current levels. The reliner #6, what was the campaign life left when it was mothballed? So it was relined in 1996. So it had time left on it, but that's actually irrelevant, Owen, because what we would do if we reline it is we would give it a full reline. It wouldn't be a half job. It'd be a full reline. So we would then have the option to run it for a full campaign life, which would be another 20 years if and when we did that. And then a question which is quite topical, concern about geopolitical risk in China. I got asked about this on the media. I mean, we're no diplomats or politicians, but clearly, a better environment for us is a more conducive trade environment with China. We manage our business in China for China. We don't have the export or import risk that other businesses have. And the market is very busy. You saw from that first half, a $40 million number, that's a terrific EBIT for the China business, so they were busy in the second half. And here's a fourth one, and I'm just reading this. So this could go anywhere. If Fortescue can deliver commercial volumes of green steel from Port Hedland by the end of the decade, what does that mean for BlueScope? That's an interesting question, Owen. I watched that presentation. Look, I think there needs to be some -- there needs to be more thought and time spent on this. Green steel can mean lots of things. For decades now, the iron ore miners in the Pilbara have been trying to solve the problem of how to make HBI or DRI out of that incredible iron ore resource. It's not simple. BHP failed. CRA failed. Andrew has talked about the opportunity to do that in the West now. Now whether it's making steel or making other products that feed into the steelmaking process, clearly, with that iron ore resource, clearly with port facilities, access to gas or renewable energy, then there's a scenario to do that. It hasn't yet worked. I'm not sure I can see a scenario where one country would become the global steelmaker and supplier to the rest of the world. That's not how the steel industry has developed over decades, centuries, in fact. So I'm not certain that I see that ever as being a scenario that would be a threat to BlueScope. Access for us to greener steel, hydrogen, green steel inputs, DRI, HBI from hydrogen and green steel sources, they're all the sorts of things that we're thinking about in terms of a blast furnace -- our blast furnace reline pre-feasibility study. Our assessment right now, and I reckon I've got the best steelmakers in the world sitting in Illawarra, our assessment right now is that we don't see a technology that's going to be commercially or technically viable between now and when we need to roll out a #5 and roll into #6, if that's the way we choose to go. What's encouraging and really pleasing for us is the cash flows, as we've mentioned, and the EBIT out of the Australian Steel Products business mean that we're not locked into a 20-year campaign life for #6. If we chose to reline it, we would have the flexibility and the opportunity to roll out of that into new technologies as and when they become available. So at this stage, I don't -- to answer your question directly, I don't see any immediate threat. But we're as interested in hydrogen and green steel and low-emissions steel technology as anybody, iron ore miners, coal miners, whoever. We're as interested in that as they are. And again, a key part of Gretta's role is going to be thinking about all of the parties, all the counterparties that are involved in this, whether it's producing hydrogen, whether it's producing intermediate materials, whether it's producing green steel. We want to be a part of that process. So that's why we're putting the resource and the commitment of an executive-level team member into that role. So I think they were the only questions I had from you, Owen. So I hope we've answered those for you, and I apologize you couldn't get through, and hopefully, you can still hear us. I don't know if there's any more questions on the line. -------------------------------------------------------------------------------- Operator [80] -------------------------------------------------------------------------------- There are no further questions at this stage. -------------------------------------------------------------------------------- Mark Royce Vassella, BlueScope Steel Limited - MD, CEO & Director [81] -------------------------------------------------------------------------------- Okay. Great. Thanks, everybody. Appreciate your time. Now it's a busy week, and thank you for giving us your time this morning and look forward to talking to you again as the week unfolds. Thanks.