The Investment Column: Prices fears temper steel profits - Business - News - The Independent

The Investment Column: Prices fears temper steel profits

When a company breaks through the billion pound profit barrier for the first time, management could be forgiven for expecting a little more than a ha'penny rise in the share price. But such is life in the steel sector. British Steel has been riding the cycle and the market had been expecting a strong performance. The share price reaction shows that the market is predicting the best may be over and worse yet to come.

Chief executive Sir Brian Moffat accepted yesterday that since the steel industry was at the top of its cycle, profits for the current year would be adversely affected, though he still anticipated a "satisfactory performance".

Quite what that means largely depends on your view of how far steel prices will fall in the next two years. Some analysts are predicting a "soft landing" following the difficulties in the second half last year, which spilled over into the first quarter of 1996. But the bears are predicting significant falls in steel prices. They are also wary of British Steel's ability to manage the decline.

All this is harsh on a company whose shares had a good run earlier this year. Profits were struck at a record pounds 1.1bn compared with the previous year's figure of pounds 578m.

The results were boosted by the contribution of Avesta Sheffield, the Swedish stainless steel group, in which British Steel increased its stake to over 51 per cent. They also include a full-year's contribution from British Steel Engineering Steels, British Steel Forgings and Scunthorpe Rod Mill, all of which became wholly owned in March 1995.

Even with capital expenditure topping pounds 320m, there was a cash inflow of pounds 561m, which took net funds as at 30 March to pounds 690m. There has been talk of a share buy-back but the company said yesterday that it was more likely to spend the cash pile on acquisitions.

British Steel shares have enjoyed a strong run in the last few years, rising from a low of just 47p in 1992 to almost 200p earlier this year. But the price has come off in the last couple of months, reflecting concerns over de-stocking and the steel price. Sir Brian indulged in a fresh outburst against state subsidies, though British Steel has responded in an aggressive manner to produce more to try and improve short-term profitability.

The big question is whether the newly privatised European steel industry will change its past habits and rein its production back. In the past they have, like British Steel, made the dash for volumes to support their overheads as the cycle turns.

With analysts forecasting profits of pounds 578m this year, the shares, at 178p, are on a forward rating of 8. Avoid.

Suggested Topics
Life and Style
tech
News
Paper trail: the wedding photograph found in the rubble after 9/11 – it took Elizabeth Keefe 13 years to find the people in it
newsWho are the people in this photo? It took Elizabeth Stringer Keefe 13 years to find out
Arts and Entertainment
Evil eye: Douglas Adams in 'mad genius' pose
booksNew biography sheds light on comic genius of Douglas Adams
Arts and Entertainment
Robin Thicke's video for 'Blurred Lines' has been criticised for condoning rape
music
PROMOTED VIDEO
Sport
FootballFull debuts don't come much more stylish than those on show here
News
i100
Life and Style
Kim Kardashian drawn backlash over her sexy swimsuit selfie, called 'disgusting' and 'nasty'
fashionCritics say magazine only pays attention to fashion trends among rich, white women
Arts and Entertainment
TVShows like Agents of S.H.I.E.L.D are little more than marketing tools
Arts and Entertainment
Hit the roof: hot-tub cinema east London
architectureFrom pools to football pitches, rooftop living is looking up
Travel
travel
News
The ecological reconstruction of Ikrandraco avatar is shown in this illustration courtesy of Chuang Zhao. Scientists on September 11, 2014 announced the discovery of fossils in China of a type of flying reptile called a pterosaur that lived 120 millions years ago and so closely resembled those creatures from the 2009 film, Avatar that they named it after them.
SCIENCE
Life and Style
tech
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Matisse: The Cut-Outs exhibition attracted 562,000 visitors to the Tate Modern from April to September
art
Life and Style
Models walk the runway at the Tom Ford show during London Fashion Week Spring Summer 2015
fashionLondon Fashion Week 2014
News
Kenny G
news
News
peopleThe black actress has claimed police mistook her for a prostitute when she kissed her white husband
Life and Style
techIndian model comes with cricket scores baked in
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Senior BA - Insurance **URGENT**

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Training Coordinator / Resource Planner - City, London

£35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...

Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

£400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week