Australian steelmaker BlueScope (ASX:BSL) has defied expectations by increasing its final and full-year dividends for the 2023-24 financial year, even as it forecasts a dramatic profit slump in the first half of 2024-25.

The company has issued a profit warning, predicting earnings before interest and tax (EBIT) to plummet by up to 60% in the December half compared to the previous year. This sharp decline is attributed to a combination of factors, including:

• Weakening steel market: A downturn in the global steel market, particularly in Asia, has led to lower steel prices and increased raw material costs.
• Economic challenges: Rising inflation, especially electricity costs, is adding pressure to BlueScope's operations.
• Soft Australian market: Declining building and construction activity in Australia has impacted domestic demand for steel.
• Despite these headwinds, BlueScope has opted to reward shareholders with a higher dividend, a move that has surprised many market observers. The company argues that it is important to maintain a balance between short-term performance and long-term growth investments.

To navigate the challenging environment, BlueScope is intensifying its focus on cost management, revenue generation, and capital expenditure timing. The company also has a significant share buyback program underway, which is expected to provide support to the share price in the near term.

While the profit outlook is bleak, credit rating agency Moody's has affirmed its positive view of BlueScope, citing the company's strong balance sheet and conservative financial management.

The market's reaction to the news has been relatively muted, with BlueScope's share price experiencing a modest decline.