ASW shares tumble after profit warning: Soaring scrap prices and European weakness will hit second-half results, company says

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The Independent Online
SHARES in ASW Holdings, the Cardiff steel maker, tumbled by 47p to 147p yesterday after the company warned that soaring scrap prices and weak steel prices in Europe would hit profits in the second half.

ASW said that if market conditions did not change markedly for the remainder of the year it expected its steel businesses to remain in profit in the second half but at a lower rate than in the first six months.

Analysts interpreted this to mean that ASW, which bounced back into the black in the first half of the year with pre-tax profits of pounds 1.5m, was likely to be between break-even and pounds 2m profit for the year compared with a loss of pounds 10.8m in 1992.

Despite the setback ASW expects to pay an unchanged final dividend of 3p for a full year total of 6p.

The company was moved to issue its statement since analysts' forecasts of between pounds 8m and pounds 10m for 1993 were too high.

It said that although news on European steel prices and the cost of scrap was in the public domain this had not been reflected in outside estimates of ASW's likely earnings, which were higher internal forecasts.

After averaging pounds 70 a tonne in the first five months of this year, compared with pounds 55 in 1992, scrap prices rose sharply in June to pounds 80. They fell in August but have since risen again to pounds 85 a tonne.

European steel prices have also been weak and particularly so in the case of ASW's reinforcement steel, widely used in the construction industry, where gross margins - the difference between delivered prices and scrap prices - are back down to levels seen in the final quarter of last year.

Tightness in scrap, which supplies two-thirds of ASW's input, has been caused by lower exports from the US. British Steel, as an integrated operation, is less reliant on scrap and has been less affected but its shares fell 3.5p to 126p.

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