The BlueScope Steel Limited (ASX: BSL) share price could rise today after revealing it’s expecting a much larger profit.
Why the BlueScope share price could go up
Steel business BlueScope said that it now expects underlying EBIT (EBIT explained) for the second half of FY21 to be in the range of $1 billion to $1.08 billion. That’s a large increase from the prior range of $750 million to $830 million.
What caused the improvement in expectations?
The largest change to the expected result is from the North Star in the US. Midwest benchmark HRC (hot-rolled coil) steel prices have risen strongly since the outlook was given in February. It has gone up by around US$250 per metric tonne, resulting in stronger than expected spreads.
Management also said that the expansion project remains on track, with the new plant to be commissioned during the second half of FY22.
Its Australian steel division is also benefiting from improved realised domestic and export steel spreads. Also, domestic volumes are ahead of expectations, particularly for higher value products in the building and construction sector.
The building products segment is also expected to deliver a better result than the FY21 first half earnings, mainly due to the better margins in North America coated business thanks to rapidly increasing steel prices.
Management comments
BlueScope Managing Director and CEO Mark Vassella said: “The business has gone from strength to strength, benefitting from strong spreads, prices and demand. All of the BlueScope team are doing an outstanding job in working to meet exceptional customer demand.
“The performance continues to demonstrate the unique strength and value of our business model. BlueScope is a very different type of steel company and is in a compelling position to take advantage of emerging trends, such as demand for lower density and regional housing and for e-commerce and logistics infrastructure.”
Summary thoughts on the BlueScope share price
BlueScope’s profit and share price seems to be very cyclical and right now it’s at a multi-year high (even before today’s movement, assuming it goes up). I’m pleased for BlueScope that it’s doing so well, but I think investors need to be wary about buying at near the top of the cycle.
