The future of BlueScope Steel's Port Kembla plant is "on a knife edge" after the steelmaker said it will cut at least 500 jobs to reduce costs in the face of cheaper imports.

The steelmaker has returned to profitability but says falling demand from China means it will be cheaper to source steel substrate from overseas unless it reduces costs.

The company will take six to eight weeks to decide whether it can make the $200 million in annual savings it needs to maintain production in Australia, where it operates Port Kembla Steel Works.

The alternative is mothballing or closing the Illawarra unit with the loss of about 5,000 direct and indirect jobs.

The picture is similar in New Zealand, where BlueScope is targeting $NZ50 million ($A45.66 million) of savings by 2016/17 at its Glenbrook mill and two mines.

“The steelworks is on a knife edge,” chief executive Paul O’Malley said.

“We either deliver $250 million of cash cost reduction – and that will require multi-stakeholder contribution – or we will need to withdraw from steel supply.”

Mr O’Malley said demand in China had grown nearly six-fold in 15 years but recently plateaued, moving the country’s producers to treble exports on 2010-14 levels.

He said prices had fallen 46 per cent in that time and a third of global capacity was sitting unused.

“When there’s oversupply and a shortage of demand – and the equivalent of an extra 50 Port Kemblas on the market globally – you know you have to respond,” Mr O’Malley said.

The company wants Australian federal and state governments to reduce payroll tax, environmental and WorkCover costs, and to defer carbon costs, to secure the “game-changing” reductions.

Mr O’Malley hailed the abolition of the carbon tax and said he’d had positive talks with NSW premier Mike Baird.

BlueScope will announce the progress of its review ahead its annual general meeting in November, with Mr O’Malley confident of “the right shareholder and community outcomes”.

The company announced a profit of $136.3 million for the year to June 30, up from a loss of $82.4 million a year ago when it was hit with restructuring costs and writedowns.

Mr O’Malley said the result was driven by a $250 million net reduction in costs over five years and expects 2016 first-half underlying earnings before interest and tax to be similar to the last half’s.

“It’s all around the idea that the giant whirlpool of money that is Port Kembla could finally close,” Morningstar analyst Mathew Hodge said.

IG market analyst Angus Nicholson said the gains may be shortlived, adding that conditions remain extremely challenging.

“There’s so much over capacity in Chinese steel mills that hasn’t been sorted out yet,” he said.

• Net profit $136.3m vs $82.4 loss
• Revenue up 7pct to $8.572b
• Final dividend three cents per share, up from none.

By Stuart Condie