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Australia's BlueScope Steel First-Half Profit Jumps

BlueScope Steel, Australia's biggest steelmaker, beat expectations with a 24% first-half profits rise and signaled it was still not happy with a planned A$1 billion merger of its two smaller rivals.

BlueScope, which has operations in Australia, Asia, the Pacific and the U.S., posted a net profit of A$387.8 million ($307.8 million) for the six months to Dec. 31, 2006, compared with A$312 million a year earlier.

Four analysts forecast an average of A$359.9 million, according to a Reuters survey. John Colnan, analyst at Shaw Stockbroking said the result was largely in line with market forecasts. "The results were in line with expectations, there were no surprises to its dividend and cash flow is still strong. "As long as steel prices remain solid, the outlook of BlueScope will be as
well."

BlueScope bought shares in one of the partners so that it could set conditions on the deal. The pair, OneSteel and Smorgon Steel, recently revised their plan to circumvent BlueScope's position, but BlueScope still hopes to negotiate an agreement.

"We remain hopeful that a negotiated outcome can be achieved that is a win-win for all three companies," Chief Executive Kirby Adams told a media briefing. BlueScope bought a 19.9% stake in Smorgon last August to block the original takeover plan.

Earlier this month, OneSteel said it planned to proceed with a revised plan to take over most of Smorgon's businesses which would not require BlueScope's approval. The deal is awaiting clearance from Australia's competition watchdog.

Adams said there was still "a long way to go" in Australian steel industry consolidation, noting that the takeover still required competition clearance and a favorable tax ruling.

BlueScope said its holding will result in a 19.9% stake in the Smorgon distribution business and a 5.6% interest in OneSteel, if the deal proceeds.

Big Improvement

BlueScope also reported a surge in first-half profits on higher global steel prices and strong construction demand in Australia, and maintained its forecast for full-year earnings.

BlueScope said that although the second half would be weaker than the first half, it still expected its full-year profit to be a significant improvement on last year's result. Last year, the company's profit slumped on higher raw material costs and a charge for plant closures.

BlueScope's Australian operations remain its largest contributor to earnings. It has expanded in the United States through the 2004 acquisition of the Butler business and is investing in plants in Asia to produce higher-value painted and coated steels.

BlueScope said earnings improved on higher prices, improved sales volumes and a better sales mix, partly offset by higher raw material costs and higher metal coating costs, mainly for zinc.

Adams said in the second half, steel prices were expected to moderate and a strengthening in the Australian dollar may affect domestic sales volumes.