BlueScope Steel (BSL) shares surged more than 12% at one stage yesterday, not because of a bullish trading update at the annual meeting, but because of the company’s exposure to the North American market and the perceived benefits of a Trump presidency.
Adding to the enthusiasm for the shares, yesterday’s annual meeting was told the North Star steel venture in the US was doing better than expected, as are other parts of the country’s biggest steelmaker.
As a result, the shares bounced higher in the wake of the switch on the Trump presidency to be peak at $8.54 before dipping a little to end at $8.40 – a gain of 13.5% on the day.
Investors though also liked the reaffirming of previous guidance for underlying earnings growth by around 50% in the current six months, despite higher raw material costs, especially coal and iron ore.
In fact the company indicated that the December 31 half year would be a little better than previously expected – a sort of half hearted upgrade.
Higher steel shipments in Australia, higher prices in Asia and the US (where the now wholly owned North Star plant is performing well) are also continuing from the second half of 2015-16.
Yesterday’s annual meeting was told by CEO, Paul O’Malley that BlueScope expects its underlying earnings before interest and tax to be at least $510 million in the six months to December, up from $340 million a year earlier.
That was the guidance issued at the time of the 2015-16 financial year results issued in August.
CEO Paul O’Malley said this confidence was based on the company’s Australian business seeing "some despatch volume growth in 1H FY2017. Cost reductions and productivity improvements greater than previously advised have largely mitigated rising coal costs.”
"The high coal price will impact the March 2017 quarter to the extent increases in steel prices do not offset the cost rise. It is pleasing to note that East Asian HRC (Hot Rolled Coil) prices have risen in recent weeks.
He said the North Star "will make a strong contribution this half. Steel spread in the September quarter was US$110-130 per metric tonne higher than during 2H FY2016. While steel spread has moderated thus far in the December quarter compared to the September quarter, in line with our expectation, it remains US$30-50 per metric tonne higher than the average through 2H FY2016.”
The company’s building products group is also doing better “with margins in North America significantly stronger than last half’s good performance. Our Vietnam and India businesses are tracking ahead of expectation due to higher margins in both regions and strong volumes in India. Malaysia and Indonesia are delivering consistent results. Thailand is seeing a slightly softer half due to lower margins on higher feed costs.”
"The North American buildings business performed strongly in the peak summer building season. We expect earnings this half to be materially better than the December 2015 half, boosted also by the business improvement program, “ he told the meeting.
"Our China coated products business, combining coating, painting and roll forming operations is performing well and in line with our expectations. China Buildings is making good progress on cost reductions however continues to face competitive pressure on margins.
"Domestic activity in New Zealand continues to be strong, particularly in residential and non-residential construction and we are seeing the full benefit of the Pacific Steel and billet caster investments. Overall, with steel and iron ore prices slightly higher than our expectation at August, we expect the segment to deliver an underlying EBIT result better than 2H FY2016,” Mr O’Malley said.
"BlueScope is positioned much more favourably today than at any time in the past 10 years. We have an outstanding market presence in the fastest growing areas of the world where our products are being well received by customers throughout Asia, Australia, New Zealand and the United States. We will continue to ensure that our steelmaking operations are globally cost competitive,” he told the meeting.
