Spreads in US spot hot-rolled coil versus scrap continue to weaken, declining to US$309/t, which Credit Suisse notes is below the company’s assumed US$394/t for the June half.
Spreads are yet to be affected by a probable rise in US domestic scrap prices. Credit Suisse expects more scrap may be converted to steel in Canada and exported to the US, taking US market share and reducing Canadian scrap exports.
While FY19 earnings appear unlikely to be affected significantly, the broker suspects FY20 earnings at North Star could come under pressure.
Outperform and $16.50 target retained.
Target price is $16.50.Current Price is $11.91. Difference: $4.59 – (brackets indicate current price is over target). If BSL meets the Credit Suisse target it will return approximately 28% (excluding dividends, fees and charges – negative figures indicate an expected loss).