BlueScope's Port Kembla steelworks may still be on borrowed time despite a three-year tax break from the NSW government that secures the immediate future of its 4,500 workers.
A deferral of $60 million in payroll tax for the next three years, plus $60 million in annual savings from BlueScope's 500 job cuts and a pay freeze, have convinced the company to keep the country's largest steel plant in operation.
"The arrangement we have struck demonstrates the government's clear support for our employees, our business and the Illawarra, and it has been a key component in the board's decision to keep the steelworks open," chairman Graham Kraehe said.
The job cuts and pay freeze, announced in August, are included in a three-year enterprise agreement still be to ratified.
Chief executive Paul O'Malley says savings on materials and operations will also help deliver $200 million in overall savings being sought by the 2016/17 financial year.
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BlueScope's savings drive comes as a glut of supply from China pushes steel prices to 12-year lows, threatening its Australian operations.
"We have made progress more quickly than expected on the cost reductions within our control and may in fact outperform in this area - a necessary requirement given steel prices continue to fall," Mr O'Malley said.
The company has upgraded its half year earnings forecast by $50 million as a result, with underlying earnings in the six months to December expected to be up 40 per cent on the six months to June.
That sent BlueScope shares up 43 cents, or 10.57 per cent, to $4.40, their highest value in more than six weeks.
OptionsXpress market analyst Ben Le Brun said there are some glimmers of hope for BlueScope, including a falling Australian dollar and improved local steel demand.
But the Port Kembla plant's future is still threatened by cheap imports.
"I still think it is something that is going to be revisited down the track and I think it may be on borrowed time, Port Kembla, as painful as that would be," Mr Le Brun said.
NSW Treasurer Gladys Berejiklian said tax relief for BlueScope was unique because of the number of jobs at stake, and did not rule out further assistance beyond the three years.
BlueScope also announced it was taking full ownership of the North Star mill in Ohio in the United States, paying $US720 million to buy out its former joint venture partner.
The mill is highly regarded in the US steel industry and has delivered consistent financial performance and strong investment returns, BlueScope said.
The deal is to be funded via the US capital market and with long term bank debt.
