Bluescope considers iron ore surcharge

Bluescope considers iron ore surcharge

With price negotiations between iron ore producers and steel makers coming down to the wire, Bluescope Steel announced that due to the continuing high production costs it was considering adding raw material surcharges to its product prices in the forthcoming months. Although the company announced a record first half net profit of $485.1 million, doubling the figure for the same period of the previous year, and earnings before interest and taxes (EBIT) of $666 million, a 120% increase, the company claimed that the rise in raw materials costs cut $170 million off the EBIT. Bluescope said its scrap metal costs increased $52 million, coal costs $44 million and iron ore $44 million. The anticipated 90% iron ore price increase requested by Brazil's CVRD, a price hike that BHP and Rio Tinto would likely follow as well, worry Bluescope. The new prices for iron ore would take effect April 30, 2005. BlueScope argues that even a $1 price movement per metric ton in coal costs would shave $5 million from EBIT. That alone was enough to prompt the company to begin looking into acquiring its own mines in lieu of a reasonable agreement with the iron ore producers.