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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. In

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Speaker 2: the Asia Pacific, the Lunar New Year holiday is underway.

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Speaker 2: Markets on the Chinese mainland and Taiwan will be closed

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Speaker 2: for the entire week. Hong Kong and South Korea each

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Speaker 2: have three holidays in the week ahead, and Singapore will

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Speaker 2: be closed for two days. It's also holiday shortened week

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Speaker 2: in the US, where markets will be closed on Monday

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Speaker 2: to observe President's Day. Today. In Japan, the government reported

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Speaker 2: economic growth fell short of expectations at the end of

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Speaker 2: last year. This is on welcomed news for Prime Minister

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Speaker 2: Takeiichi after her recent election landslide. GDP expanded quarter on

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Speaker 2: quarter by just a tenth of one percent in Q four.

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Speaker 2: For a closer look, I'm joined by Bloomberg Markets Live

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Speaker 2: strategist Mark Cranfield. Mark joins us from our studios in Singapore.

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Speaker 2: Thank you for being here, Mark. What explains the tapid

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Speaker 2: growth in the Japanese economy right now?

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Speaker 3: Yeah, the GDP numbers are still very strong, even though

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Speaker 3: the headline missed beforecast seat, it's telling you that still

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Speaker 3: expectations are that wage hikes will continue to be pretty

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Speaker 3: firm in Japan this year. We've had a couple of

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Speaker 3: years where wage increases have been higher than inflation readings

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Speaker 3: in Japan. That's something the Bank of Japan talks about

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Speaker 3: a lot, and it's helping to drive them towards neutral rates.

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Speaker 3: Been pretty slow so far, but they're still going in

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Speaker 3: that direction. We have a meeting today between Japan's Prime

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Speaker 3: Minister Takeishi and the Bank of Japan Governor Wada that

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Speaker 3: will It's a normal kind of meeting they have on

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Speaker 3: a regular basis, but this one is probably going to

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Speaker 3: carry a bit more weight than usual because of this

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Speaker 3: situation where core inflation is not really coming down in

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Speaker 3: Japan despite a couple of rate hikes, and so Governor

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Speaker 3: Ladera will put be putting his case forward to say, look,

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Speaker 3: I still need to be pushing the interest rates towards

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Speaker 3: the neutral level, and let's see how Takichi respond. So far,

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Speaker 3: she's been pretty quiet on the subject since the election,

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Speaker 3: but this is an opportunity. If she wants to push

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Speaker 3: back against the Bank of Japan, this would be an

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Speaker 3: opportunity today.

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Speaker 2: Yeah, that was kind of amazing that fourth quarter deflator

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Speaker 2: figure rising at a rate of three point four percent.

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Speaker 2: That seems very very hard.

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Speaker 3: Yes, but if you look at the way that inflation

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Speaker 3: has stayed, particularly core inflation has stayed above headline inflation

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Speaker 3: for some time in Japan, so the warning has been there.

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Speaker 3: It's not something which just suddenly happened. It's a bit

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Speaker 3: more extreme when you look at how the quarterly GDP

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Speaker 3: numbers came in pretty soft today. There's a whole number

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Speaker 3: of factors in the background which seemed to make it

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Speaker 3: a bit of a one off. But certainly that you've

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Speaker 3: been having core inflation stay above headline infation for such

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Speaker 3: a long period of time in Japan is idio suggestion

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Speaker 3: that they haven't been tightening policy fast enough.

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Speaker 2: We have a story on the Bloomberg terminal today looking

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Speaker 2: at the shortage of memory chips, and one data point

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Speaker 2: leaped out at me. The cost of one type of

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Speaker 2: DRAM has soared seventy five percent from December to January. Mark.

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Speaker 2: That sounds really inflationary.

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Speaker 3: Yes, and you can see the side effect of that

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Speaker 3: is particularly here in Asia. We notice it a lot

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Speaker 3: with the stock market. So you have Taiwan's semiconductor Samsung

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Speaker 3: Electronics SK Heiniz, these kind of companies which are at

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Speaker 3: the forefront of producing these kind of chips. I mean,

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Speaker 3: their stocks are just performing fantastically. It's almost like an

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Speaker 3: inflation hedge. People are making sure they stay invested in

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Speaker 3: these companies to offset the risks from short squeezes in

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Speaker 3: chips and inflation in general. So that that's but you wonder,

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Speaker 3: is that kind of a bubble that's happening there, how

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Speaker 3: quickly that could be fleet if other people start to

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Speaker 3: get into the game. We're already seeing there's a little

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Speaker 3: bit of a fight between Samsung and esk Heinex because

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Speaker 3: Samsung has recently announced it's going to enter SK's territory

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Speaker 3: by producing a certain kind of chip which they hadn't

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Speaker 3: previously done, so internally there's a bit of disruption going

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Speaker 3: on as well. And then on the flip side of that,

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Speaker 3: of course, is the stories about AI software focused companies

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Speaker 3: being under threat because of rapid developments in that area,

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Speaker 3: and that makes you wonder whether demand for these things

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Speaker 3: is starting to peter out and it's going to be

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Speaker 3: as optimistic as we thought just a few weeks ago.

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Speaker 2: I'm wondering if you're a hyperscaler, and you're looking to

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Speaker 2: add data center capacity, and you've already kind of set

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Speaker 2: aside a certain sum of money that capax allocation. It

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Speaker 2: may not at the end of the day by as

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Speaker 2: much as was projected. I mean that these prices continue

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Speaker 2: to skyrocket.

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Speaker 3: It is and I mean a story which has become

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Speaker 3: to our attention just in the past couple of weeks

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Speaker 3: is that Australia has become the third largest country in

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Speaker 3: terms of places where people build data centers. It makes

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Speaker 3: sense because Australia it's got plenty of space, it's a

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Speaker 3: very underpopulated country. But that's almost like a reverse indicator signal.

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Speaker 3: If by now people chasing places to build data centers

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Speaker 3: have to go as far away as Australia, that probably

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Speaker 3: tells you the cycle is coming towards the peak.

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Speaker 2: So given the holiday that we have across the APEC

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Speaker 2: region this week, I'm sure that liquidity is going to

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Speaker 2: be very very thin, and typically that tends to exaggerate

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Speaker 2: some of the price discovery the moves that we see

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Speaker 2: in markets. If we just stay focused on the foreign exchange,

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Speaker 2: what are you expecting this week to play out?

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Speaker 3: Well, the it's unusual for traders to fight against prevailing trends.

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Speaker 3: As you say, when liquidity is a bit challenged, they

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Speaker 3: usually will just stick with what's been happening. And if

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Speaker 3: we came into this week, we generally the US dollar

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Speaker 3: a little bit on the back foot. Those CPI numbers

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Speaker 3: which came out last week suggest that the Federal Reserve

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Speaker 3: maybe closer to three rate cuts this year rather than two,

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Speaker 3: so that obviously will undermine the US dollar to some degree.

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Speaker 3: Although China is closed this week, the offshore U one

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Speaker 3: will continue to trade. It looks pretty strong. It went

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Speaker 3: into the holidays on a very very strong footing. And

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Speaker 3: then you've got the Japanese yen as well, where we've

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Speaker 3: got a number of stories on Bloomberg saying how people's

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Speaker 3: perception is becoming much more supportive towards the Japanese currency

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Speaker 3: since that the election. Takichi one on the ILDP one

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Speaker 3: by a large margin. And although in the past, or

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Speaker 3: certainly leading into elections, she was a little bit duvish

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Speaker 3: on the yen, but she's been noticeably quiet since then,

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Speaker 3: and she's allowed the experts in her party. She has

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Speaker 3: a chief currency person, and she's allowed him to speak

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Speaker 3: on behalf of the Japanese government, and it sounds as

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Speaker 3: though they're more realistic about the need for the end

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Speaker 3: to be a bit stronger because they do have inflationary

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Speaker 3: concerns in Japan as well. So all put all those

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Speaker 3: things together and it suggests that the US dollar is

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Speaker 3: on the near term path a bit lower, and it's

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Speaker 3: unlikely to be challenged in a holiday week.

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Speaker 2: It's a holiday shortened week here in the States as well.

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Speaker 2: Markets will be closed on Monday to observe President's Day.

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Speaker 2: At the end of the week, the Supreme Court is

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Speaker 2: scheduled its next opinion day. That would be Friday, the twentieth.

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Speaker 2: It's possible, not a guarantee, but it's possible the justices

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Speaker 2: will issue a ruling on the legality of President Trump's tariffs.

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Speaker 2: I'm curious is there a conversation in the APAC region

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Speaker 2: about the possibility that these tariffs could be overturned, at

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Speaker 2: least in the near term.

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Speaker 3: I think traders are a bit reluctant to do anything

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Speaker 3: in advance of this because it's an uncertainty they don't

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Speaker 3: fully understand. In fact, markets have dealt pretty well with

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Speaker 3: the tariffs that have been put in place already, and

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Speaker 3: whether it gets completely removed or whether there's some way

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Speaker 3: around it where the US administration can find another way

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Speaker 3: around it to keep effective tariffs in place. Anyway, I

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Speaker 3: think the degree of complexity around it means that most

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Speaker 3: investors in Asia, okay, we'll wait until we see the

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Speaker 3: full details of this before we make a big decision

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Speaker 3: about any trade on that. But of course, the overall

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Speaker 3: situation with tariffs compared to the threat that we had

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Speaker 3: with Liberation Day in April last year, it's a different

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Speaker 3: ballgame anyway. So much of that there's been a lot

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Speaker 3: of tariff reduction. The impact directly your markets has been

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Speaker 3: greatly reduced. So it's not the same kind of stand

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Speaker 3: up situation that we had. If we were talking about

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Speaker 3: trying to remove the full scale of Liberation Day tariffs,

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Speaker 3: it would be a completely different scenario. It's not, so

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Speaker 3: people are a little bit more relaxed about it.

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Speaker 2: Over the weekend, Beijing release the text of as speech

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Speaker 2: that President Chi Jinping delivered at the end of last

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Speaker 2: year at the Central Economic Work Conference, and he called

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Speaker 2: for anchoring economic growth around domestic demand as being the

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Speaker 2: primary driver. Obviously, this is coinciding with the Lunar New

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Speaker 2: Year holiday. There's a lot of emphasis on consumers spending

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Speaker 2: here is China had a point right now where growth

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Speaker 2: must be driven by domestic demand, otherwise it runs the

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Speaker 2: risk of maybe stagnating.

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Speaker 3: I don't think that would be a surprise to any

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Speaker 3: investors that have been following the China story really for

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Speaker 3: a couple of years. China's been moving in that direction.

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Speaker 3: That's the basis of the stimulus factors that we've seen

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Speaker 3: come into play really from the end of twenty twenty

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Speaker 3: four is all geared towards improving consumer demand in China

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Speaker 3: and producing more tech driven themes at home as well.

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Speaker 3: They've been putting a lot more into that as well.

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Speaker 3: So China's been working that way even before President Trump

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Speaker 3: was elected. So that's not going to be a surprise

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Speaker 3: to any investors. Getting traction for it is the tricky part.

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Speaker 3: It seems to be making some inroads in China, but

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Speaker 3: they're going to have to keep on working at it

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Speaker 3: because there is the Chinese consumer clearly is still a

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Speaker 3: little bit nervous that things could revert back to how

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Speaker 3: they were during the COVID period when demand just fell

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Speaker 3: off a cliff. So it's not a full level of confidence.

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Speaker 3: The government will have to keep on providing ideas. And

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Speaker 3: then at the same time you've got this price war

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Speaker 3: going on. These delivery firms, which are the big tech companies,

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Speaker 3: all have their deliveries. They'll be trying to undercut each

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Speaker 3: other with prices and that's not helping the situation either.

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Speaker 3: The government is also stepping in there to try and

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Speaker 3: make them see reason and have a more sensible playing

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Speaker 3: field for that. So there's a whole number of factors

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Speaker 3: going on. But you can't expect China to fall back

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Speaker 3: on this at all. They're going to be driving ahead

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Speaker 3: with trying to make sure that all their domestic leavers

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Speaker 3: are working. Its possible because the external environment is starting

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Speaker 3: to work against them and they know that, so they

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Speaker 3: have to really boost domestic consumption.

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Speaker 2: Mark will leave it there. It's always a pleasure. Thanks

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Speaker 2: so very much, Bloomberg Markets Live strategist Mark Cranfield joining

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Speaker 2: from our studios in Singapore here on the Daybreak Asia podcast.

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Speaker 2: Welcome back to the Daybreak Asia Podcast. I'm Doug Prisner.

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Speaker 2: We moved to Australia next, where the country's largest steelmaker,

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Speaker 2: blue Scope, said its first half net profit more than doubled,

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Speaker 2: and the company signaled higher payouts to shareholders over the

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Speaker 2: next twelve months. Now, Blue Scope Steel recently rejected a

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Speaker 2: takeover offer by conglomerate SGH and the US steelmaker Steel Dynamics.

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Speaker 2: We had the chance to catch up with the company CEO,

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Speaker 2: Tanya Archibald. Tanya spoke to Bloomberg TV host Sherry On

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Speaker 2: and Paul Allen, and the conversation began with a question

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Speaker 2: about the takeaway for shareholders when it comes to those payouts.

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Speaker 4: I think the message that we're trying to send is

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Speaker 4: that we're coming towards the back end of a very

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Speaker 4: large capital investment program that's been running for quite a

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Speaker 4: number of years, and as we go into the new era,

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Speaker 4: what we're doing is ramping down that capital send, ramping

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Speaker 4: down that capital spend, and ramping up the returns to shareholders.

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Speaker 4: So we're very, very focused on putting value into the

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Speaker 4: hands of our shareholders. And as you point out, what

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Speaker 4: we're aiming to do, planning to do for this calendar

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Speaker 4: year is put three dollars a share into the hands

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Speaker 4: of our shareholders.

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Speaker 5: Yeah, we can't look away from those takeover bids because

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Speaker 5: there have been a few over the years as well,

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Speaker 5: So I'm just curious, would you entertain higher offers down

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Speaker 5: the track from SGL or Steel Dynamics or any other

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Speaker 5: suitors on the horizon.

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Speaker 4: Oh.

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Speaker 6: Look, we always have to.

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Speaker 4: Value out and consider any offers that might come our way,

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Speaker 4: and we're always open to any option that realizes value

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Speaker 4: for our shareholders.

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Speaker 6: But at the end of the day, we're getting on

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Speaker 6: with it. We're not sitting around waiting.

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Speaker 4: For bids to materialize. We have a great company. We

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Speaker 4: have a great program of initiatives with our cost production plans,

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Speaker 4: with our growth plans, with accelerating the delivery of value,

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Speaker 4: and again with the ramping down of the capital spend

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Speaker 4: that gives us the capability to ramp up those returns

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Speaker 4: to shareholders and rebasing those returns higher.

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Speaker 1: How are higherer of your costs impacting your business so far?

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Speaker 4: So? Energy costs certainly have an impact across any manufacturer,

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Speaker 4: and it's really part of the ongoing cost and productivity

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Speaker 4: programs that we run right across the portfolio. You've got

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Speaker 4: to be highly competitive to be a successful manufacturer, and

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Speaker 4: it's one of the many challenges that we face. But

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Speaker 4: we are a highly competitive manufacturer, and I think that

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Speaker 4: points to the quality of the earnings that came through

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Speaker 4: in the last half, the five hundred and fifty eight

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Speaker 4: million dollars of underlying EBIT, and again to your point

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Speaker 4: in the recap, the outlook for the next half around

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Speaker 4: six hundred and twenty to seven hundred million dollars of EBIT.

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Speaker 4: These are challenges that we deal with as a very

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Speaker 4: successful manufacturer.

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Speaker 1: What's an outlook for seale demand? Then?

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Speaker 4: I think the outlook for steel demand is reasonably robust.

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Speaker 4: I mean, it's a cyclical industry just by its very

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Speaker 4: nature in terms of clicks of capital that can come online.

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Speaker 6: So we do deal with those cycles.

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Speaker 4: But at the end of the day, steel is a

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Speaker 4: fundamental part of everyday life. It's got a critical role

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Speaker 4: to play in the energy transition. Steel's not going anywhere.

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Speaker 4: There's lots of interesting conversation and work going on over

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Speaker 4: time around lower emissions steel, but there's a long way

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Speaker 4: to go in that process. So we see a very

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Speaker 4: healthy outlook for steel, including in our core markets in Australia,

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Speaker 4: New Zealand, Asia and the US.

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Speaker 5: So how are you balancing that outlook that expected increase

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Speaker 5: in demand and plans for future growth versus those other

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Speaker 5: plans to continue returning cash to shareholders.

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Speaker 4: So the capital program that we've been undertaking for many

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Speaker 4: years has been at an elevated level.

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Speaker 6: Of course, we've been working our way.

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Speaker 4: Through the reline of the Number six blast furnace in Australia,

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Speaker 4: so that's consumed a higher level of capital than you

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Speaker 4: would normally see in our history. We've got plenty of

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Speaker 4: capacity to fund ongoing growth, it's just not necessarily going

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Speaker 4: to be at the magnitude of the very large projects

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Speaker 4: that we've been undertaking in the next couple of years.

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Speaker 4: So we're very comfortable with our growth pipeline, our ability

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Speaker 4: to fund that growth pipeline and also make sure that

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Speaker 4: we have a healthy balance sheet.

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Speaker 5: We had to report from the Financial Times towards the

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Speaker 5: end of last week that President Trump might be considering

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Speaker 5: lowing lowering some steel tariffs aluminium tariffs as well. But

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Speaker 5: one of the implications for blue Scope here are considering

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Speaker 5: you do produce this very significant proportion of your steel

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Speaker 5: inside the US.

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Speaker 4: I think it's a bit of a peripheral issue. Quite frankly, Yes,

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Speaker 4: I did see those headlines. I believe based on the reports,

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Speaker 4: and I think a lot of them are a little

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Speaker 4: bit speculative.

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Speaker 6: It's actually in relation to derivative products.

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Speaker 4: Some which have lower levels of steel might have a

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Speaker 4: lower tariff, and then other products which have a higher

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Speaker 4: component of steel might have a higher level. But at

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Speaker 4: the end of the day, our assets, and particularly the

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Speaker 4: north Star asset in the US, it's a wonderful asset.

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Speaker 4: It doesn't compete on the basis of tariffs. It's one

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Speaker 4: of the best minimals in the US. It's well located,

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Speaker 4: it has a fantastic cost base, a very very productive team,

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Speaker 4: and really the noise around tariff's tariffs come, tariffs go.

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Speaker 6: That's the reality of what we deal with as a

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Speaker 6: Manu facturer.

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Speaker 4: We've got a fantastic asset, so very much a brutal

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Speaker 4: issue in my mind.

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Speaker 5: Would you be looking to increase your exposure in North

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Speaker 5: America as well, and are there any assets there that

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Speaker 5: would fit well with your portfolio?

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Speaker 4: We are certainly looking to increase our exposure in the US.

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Speaker 4: We've got a healthy pipeline, we've got an ongoing expansion program. Again,

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Speaker 4: so we put in the major expansion a couple of

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Speaker 4: years back at Allstar where we took it from two

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Speaker 4: point one to just under three million tons metric tons.

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Speaker 6: I'm talking.

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Speaker 4: We've got another expansion program underway to take it up

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Speaker 4: to three point three. We think we can further increase

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Speaker 4: it from there. We're also looking at growing our premium

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Speaker 4: branded position in the US. Of course, blue Scope is

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Speaker 4: one of the world's leading coders and painters of steel

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Speaker 4: and so we think we've got a fantastic position upon

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Speaker 4: which to build. So we do see significant growth opportunities

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Speaker 4: over time in the US. A lot of it though

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Speaker 4: we believe will be pursued through organic means.

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Speaker 1: I tell us a little bit more about the flagship

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Speaker 1: projects in the US and the bright spots there.

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Speaker 4: So the key projects in the US, I think if

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Speaker 4: I heard you correctly, so we're expanding north Star again.

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Speaker 4: So that's the program that's under way. The incremental capacity

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Speaker 4: of three hundred thousand tons. We think we can go

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Speaker 4: beyond that, but we're focused on the three hundred thousand

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Speaker 4: tons delivery at the moment. And then of course there's

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Speaker 4: the expansion of Coded and Painted. We have wonderful positions

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Speaker 4: in Coded and Painted in Australia, New Zealand and Asia.

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Speaker 4: We think there's a large market or we can see

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Speaker 4: a large market in the US, and we're very keen.

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Speaker 6: To tap into that market further.

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Speaker 1: A couple of years ago, you announced a joint venture

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Speaker 1: with bhpn Rio when it comes to reducing emissions and steelmaking.

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Speaker 1: How is that progressing and are you seeing a shift,

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Speaker 1: especially with the likes of the Trump administration not necessarily

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Speaker 1: so focused on clean energy.

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Speaker 4: Yes, So what you're referring to there is the Neo

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Speaker 4: Smelt joint venture. Blue Scope is the leading partner within

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Speaker 4: that joint venture. We're working with bohp Rio, Tinto, Mitsui

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Speaker 4: and Woodside. It's a very large R and D project

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Speaker 4: and what the intent of that project is to do

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Speaker 4: is to understand how you can use the pilver ores

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Speaker 4: Australi as pilbra ores in a.

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Speaker 6: Direct reduced iron technology.

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Speaker 4: So that's potentially a lower emissions form of iron making.

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Speaker 4: With natural gas you can get around a sixty percent

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Speaker 4: reduction in emissions. If you have green hydrogen you get

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Speaker 4: closer to one hundred percent.

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Speaker 6: It's a very large, again R and D project.

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Speaker 4: We're working our way through the feasibility stage and we'd

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Speaker 4: be looking to make a decision about whether or not

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Speaker 4: to progress to a pilot towards the back end of

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Speaker 4: this year.

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Speaker 5: You're also upgrading some of your other steel works up

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Speaker 5: Paul Kamberer Glenburg as well with a reliance on green technology.

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Speaker 5: Can you give us a sense of where you are

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Speaker 5: with that, particularly in terms of meeting timelines.

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Speaker 4: So the steel works in New Zealand has actually been

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Speaker 4: one of our highest emitting assets, and what we've done

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Speaker 4: in conjunction with the New Zealand government is we're installing,

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Speaker 4: with their support, we've been installing an electric arc furnace.

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Speaker 6: So we're going to shut.

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Speaker 4: Down half of existing iron and still making capacity at

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Speaker 4: New Zealand and replace it with an EAF that enables

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Speaker 4: us to have much more flexible operating conditions. We've got

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Speaker 4: a reset in our energy contracts and we end up

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Speaker 4: with a lower missions product. So we're very comfortable with

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Speaker 4: the approach that we're taking in New Zealand. But it's

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Speaker 4: a relatively smaller scale to what we have in Australia,

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Speaker 4: and so that's why in Australia we think that the

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Speaker 4: pathway towards lower mission's iron and steelmaking is more around

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Speaker 4: the direct reduced iron technology route. We do think it's

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Speaker 4: some way off, and that's why we're engaging with the

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Speaker 4: Neo Smelt joint venture. The technology needs to be proven

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Speaker 4: out and then of course you need to have a

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Speaker 4: commercial business case to make sure that the spend that's

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Speaker 4: required to fund that change in the iron and still

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Speaker 4: making technology.

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Speaker 6: Can be paid for.

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Speaker 4: So I think we're probably at least a decade away,

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Speaker 4: if not more, in terms of having a change in

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Speaker 4: iron and still making technology in this country.

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Speaker 2: That was Tanya Archibald, the CEO of blue Scope Steel,

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Speaker 2: speaking with Bloomberg TV host Paul Allen and Sherry On

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Speaker 2: and we're bringing it to you here on the Daybreak

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Speaker 2: Asia Podcast. Thanks for listening to today's episode of the

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Speaker 2: Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at

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Speaker 2: the story shaping markets, finance, and geopolitics in the Asia Pacific.

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Speaker 2: You can find us on Apple, Spotify, the Bloomberg Podcast

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Speaker 2: YouTube channel, or anywhere else you listen. Join us again

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Speaker 2: tomorrow for insight on the market moves from Hong Kong

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Speaker 2: to Singapore and Australia. I'm Doug Prisoner. This is Bloomberg