Struggling Australian steelmaker BlueScope Steel's nearly $1.4 billion joint venture with Japan's Nippon Steel signals the company is on the path to recovery, its CEO Paul O'Malley told CNBC on Monday after the deal was announced.
O'Malley said the deal, which sees BlueScope selling half of its Southeast Asian and North American building products businesses to the Japanese steelmaker for $540 million dollars, will help bolster its business.
"We still have a good business in Australia, and we told the market we think we've turned the corner there. What this JV (joint venture) does is recognizes - specifically in our coated-products building [business] in Asia- that we have a very good business and that with Nippon Steel we can make that an even better business," O'Malley told CNBC's "Cash Flow".
BlueScope expects the new JV called NS BlueScope Coated Products to strengthen its balance sheet, which has been under pressure since it was forced to issue new shares and adopt cost cutting measures, including shutting down its export steel-making business in Australia, last year.
BlueScope, which reports its annual earnings next week, flagged an unaudited net loss of about A$1 billion ($1.0566 billion )for the financial year ended June 30, due to the restructuring of its steel-making business in Australia and impairment charges of about A$310 million.
Aussie Dollar Hits Hard
The steelmaker, like other Australian manufacturers, has been struggling with a strong Australian dollar, which makes its exports less competitive.
While a strong Aussie dollar has hurt BlueScope, O'Malley says the new deal will help strengthen its Asian operations giving it access to Nippon Steel's established customer base in the region. "It's a great opportunity to benefit from the increasing wealth we've seen in Asia and the demand that we will create," he said.
O'Malley added that the Aussie dollar was overvalued at current levels, but he did not think intervention by the Reserve Bank of Australia (RBA) would be effective in bringing it down.
"I think we need to have an acknowledgment of the cumulative cost of doing business in Australia and I think the Australian dollar is overvaluedby 5 to 7 cents beyond the terms of trade... but I think it's really hard to expect the Reserve Bank to solve that problem," he said.
In its quarterly statement on monetary policy issued last week, the RBA flagged the strong exchange rate as a key risk to the economy, prompting some analysts to call for central bank intervention to weaken the currency.
By CNBC’s Roshan Vaswani