A fully integrated business
OneSteel’s fully integrated business model and broad range of products, services and capabilities sets it apart from most steel companies in the world which tend to be only manufacturers of steel. Our ability to source iron ore from our mines, collect scrap from our recycling sites and distribute products through our own distribution network means that we can retain value in the manufacturing process, are less reliant on suppliers and ultimately can be more competitive in the marketplace.

A year of unprecedented change
The following graphs illustrate the trend in some of the major drivers in OneSteel’s business including prices of international steel, key inputs into steel making, and the volume of steel imports into Australia. OneSteel’s major manufacturing and distribution sites are mapped on page 23.

IRON ORE PRICE
OneSteel has high–quality iron ore reserves in South Australia. In the 2008 financial year, OneSteel exported more than 4 million tonnes of hematite iron ore, a direct result of Project Magnet.

Figure 3 shows international movement in iron ore prices in both US and Australian dollars, which highlights the 96% increase in lump prices to Japan in April 2008. Iron ore prices as revenue associated with iron ore exports and the cost–base of international steel manufacturers on international steel prices, are key drivers of OneSteel’s overall performance.

COKING COAL PRICE
Figure 4 shows the international movement in contract coking coal prices in US and Australian dollars. Whyalla Steelworks uses coking coal in the manufacturing process to make iron. OneSteel purchases approximately one million tonnes of coking coal per annum. The graph illustrates that coking coal contract prices increased by more than 200% in April 2008. These prices will be in effect until March 2009. Key drivers for the substantial increase in coking coal prices were short–term supply shortages associated with floods in the QLD Bowen Basin and fundamental shifts in the supply–demand balance for hard coking coal.

SCRAP PRICE
Figure 5 shows prices for scrap steel in US and Australian dollars. OneSteel uses approximately two million tonnes per annum of externally sourced scrap feed for its steel manufacturing operations in Whyalla, Sydney, Laverton and Waratah Steel Mills.

The 2008 financial year saw dramatic increases in the internationally traded prices for steel scrap to which Australian prices for scrap are linked. The benchmark price for scrap in US dollar terms increased by over 100% in the period from July 2007 to June 2008.

LONG PRODUCTS INTERNATIONAL PRICES
Figure 6 highlights the dramatic increases in international benchmark Structurals, Merchant Bar, Reinforcing Bar and Wire Rod prices from January 2008. The key segments for these products are residential, non–residential and engineering construction. The graph is in US dollars and highlights an increase of approximately 60% in benchmark prices since January 2008. International prices for long products have a direct impact on OneSteel’s revenue because they influence both the export and domestic price at which OneSteel’s products can be sold. Benchmark prices have increased approximately 60% since January 08.

PRICES FOR STEEL RESIDENTIAL CONSTRUCTION MATERIALS
This graph represents prices of steel products used in Australian residential construction as measured against an index. OneSteel produces structural steel and reinforcing products. The rise in steel prices depicted in Figure 7 reflects strong international demand for steel, influenced by sharply increasing prices for key steelmaking inputs such as scrap steel, iron ore and coking coal.

IMPORT VOLUMES OF STEEL INTO AUSTRALIA
Import volumes of steel into Australia continued to grow in the first half of the 2008 financial year. However, the second half of the financial year saw a significant shift in the price and availability of steel imports into Australia, and steel demand and raw material costs substantially increased. This is reflected in Figure 8.

HOT ROLLED COIL (HRC)
Figure 9 represents prices in US and Australian dollars for HRC, a major semi–finished steel flat product that is used primarily by OneSteel in the manufacture of pipe and tube. OneSteel is a substantial purchaser of Hot and Cold Rolled Coil (approximately 600,000 tonnes per annum), a position that has increased post–merger with Smorgon Steel. The 2008 financial year saw a substantial escalation in international prices of HRC. Benchmark US dollar prices increased by approximately 78% in the period from July 2007 to June 2008. OneSteel expects that HRC pricing will continue to be volatile in 2008/2009.