Forum Archive Index - October 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Ophelia, as she appeared in the 'Investing in Steel' soap 
post this week, and more usually known as 'OneSteel', is a share 
quoted on the Australian stock exchange.    Why then is she 
co-starring on New Zealand's 'Sharechat', and why should you be 
interested?

OneSteel has a strong kiwi connection in that it is a 50% owner of 
locally listed Steel & Tube.    Furthermore OneSteel came into 
existence when it was split from BHP in late 2000, and many BHP 
shareholders are domiciled in New Zealand.   Consequently BHP 
shareholders were allotted shares in OneSteel, but in such small 
amounts the shares were hardly worth bothering about.    OneSteel 
receives virtually no coverage in the New Zealand media, and 
consequently there are many New Zealanders who have OneSteel shares 
but don't really know what they have got!

So what is OneSteel?   OneSteel is very much an Australasian focussed 
business and, in one sentence, is best described as a 'vertically 
integrated manufacturer and seller of long steel products'.   

Translation?  OneSteel starts with iron ore mined from the vast 
tracts of her Australian reserves, processes the ore into steel, and 
forces the steel through extrusion machines to produce angle iron, 
box section, channel section and any other long continuous run 
section of steel that you can name.   Having produced these 
continuous steel section products it chops them up into 'truck 
length' lengths and proceeds to sell them all over Australia and New 
Zealand.

It is one of the top two steel distributors in Australia, and number 
one in all the markets it contests.  Except, that is, for reinforcing 
steel where it is number two to main rival in Australia 'Smorgon 
Steel'.

So why might you consider investing in OST, instead of the local 
arm Steel & Tube?    One word: scale.  If you define the 
'construction market' in Australia as: Building Construction (both 
commercial and residential), Heavy Engineering (e.g. bridges), Mining 
(mining infrastructure), and Rail (both the rails themselves d metal 
sleepers) then OneSteel has 80% of the market for the steel that goes 
into those projects.   Yes you did read that correctly: 80%!     
Compare this to NZ's 'Steel & Tube' who have about 50% of the 
construction steel market in the much smaller market that is New 
Zealand.  You will see why relatively small stand-alone units like 
Steel & Tube cannot hope to match the economies of scale in the 
construction side of the business that OneSteel has.

Against this must be weighed the relative strength of the very efficient
 steel distribution business that Steel & Tube now runs, and the fact 
that Steel and Tube, being a New Zealand share, has imputation 
credits available to NZ investors.     It comes down to a close 
contest, and for this reason I believe that each 'Steel an Tube' 
investor should at least have OneSteel on their radar screens.      
More information on 'Othelia' (aka OneSteel) will follow.

SNOOPY

---------------------------------
Message sent by Snoopy 
e-mail  tennyson@caverock.net.nz
on Pegasus Mail version 2.55
----------------------------------
"Sometimes to see the wood from the trees, 
you have to cut down all the trees."



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