Building boom drives steel demand, delivers profit upgrade for BlueScope

A building boom spanning from US to Australia is delivering BlueScope Steel its best steel sales in a decade.

The BlueScope Steel works in Port Kembla. Picture: John Feder

A building boom spanning from the US to Australia bolstered by steadily rising steel prices and fatter margins is delivering BlueScope Steel its best steel sales in a decade, giving it the confidence to deliver its third profit upgrade in five months.

The steelmaker, with operations in Australia and in key offshore markets in North America, said on Tuesday it now expects underlying earnings before interest and tax for the second half of 2021 to be in the range of $1bn-$1.08bn. This is above the prior guidance range of $750m-$830m, and is subject to spread, foreign exchange and market conditions.

In January, BlueScope said it expected to book a half-year profit, before interest and tax, of $530m-$550m ahead of updated forecasts provided in November, and almost $200m ahead of the $340m it tipped in October. The company’s total underlying EBIT in the 2019-20 financial year was only $564m, as earnings crashed amid the coronavirus crisis.

Consumers locked down in their homes or unable to travel poured money into building, construction and renovations last year, and this has continued into 2021, creating building bonanzas for suppliers such as BlueScope.

Shares in BlueScope were up almost 3 per cent on the third earnings upgrade and further evidence of a building and renovation boom was combining with higher steel prices to provide robust trading conditions. The shares closed up 11c at $22.16, to be trading at a 13-year high.

“The business has gone from strength to strength, benefiting from strong spreads, prices and demand,” BlueScope chief executive Mark Vassella said.

“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.”

The largest change to the expected result is from North Star in the US, where the company is still building a $1bn expansion, as steel margins and steel prices moved in its favour, the company said.

Midwest benchmark steel ­prices have risen strongly since the outlook was provided in February (they are up about $US250 per metric tonne), resulting in stronger than expected spreads.

The better “spreads” for BlueScope indicates higher steel prices compared to the key input costs of coking coal and iron ore to push out steel from its mills.

BlueScope said Australian Steel Products is also benefiting from improved realised domestic and export steel spreads. It said that, in addition, domestic volumes were tracking ahead of company expectations, particularly for higher-value products in the building and construction sector.

And a building boom from the US to Australia and Asia was generating strong demand for its steel.

“Finally, the building products segment is now expected to deliver an improved result over first half of fiscal 2021 earnings, mainly due to expanding margins in the North America coated business driven by rapidly increasing steel prices,” the company said.

“ASEAN earnings are also anticipated to be better than prior expectations due to higher than expected steel prices favourably impacting realised margins.”

Macquarie Research, in a note to clients following the BlueScope profit upgrade, said strong construction demand in Australia was driving painted product sales, where margins were substantially above average.

“Spreads should also become a bigger factor driving profitability into fiscal 2022,” Macquarie Research said.

It said there was also upbeat commentary coming out of the US steel sector.

“The comments coming from the US steel sector have remained particularly buoyant through reporting,” it said. “Demand is strong and supply, especially in the Great Lakes region, continues to lag. In Asia, spreads have also moved to record levels, supporting the outlook at Australian Steel Products.”

BlueScope CEO Mark Vassella. Picture: Hollie Adams

Originally published as Building boom drives steel demand, delivers profit upgrade for BlueScope