BlueScope hikes second half earnings by 40pc, driven by improvements in US outlook

The group, led by Mark Vassella, has forecast a 40 per cent lift in earnings for the second half of the financial year, thanks to the improving outlook in the US.

BlueScope Steel has flagged a 40 per cent lift in earnings for the second half of the financial year compared to previous guidance, as strengthening steel prices in the US lift the company’s profits.

BlueScope lifted expectations on Monday, saying it now expected earnings before interest and tax of $700m to $770m for the second half of the financial year, up from earlier forecasts of $$480m to $550m.

The company said the bulk of the earnings uptick would come from its US operations, where higher steel prices are boosting the fortunes of its North Star mill, where an expansion is also lifting output, as well as improved pricing from the company’s coated products business.

BlueScope has just completed a $1bn-plus expansion of North Star, which added 850,000 tonnes of extra capacity to its production facilities in Ohio, and has been steadily bringing that extra capacity on stream in response to the improving US market.

The US operations had a slow start to the financial year, with depressed pricing as US carmakers were restricted due to the shortage in availability of semiconductors and other parts of the supply, reducing output of cars.

While shortages still exist, carmakers in the US and Europe reportedly boosted production significantly in the March quarter as some supply chain issues improved.

North Star reported EBIT of $202m in the December half, and BlueScope said it expected its second half result to be around 50 per cent higher than that.

BlueScope booked earnings before interest and tax of $834.4m for the first half of the financial year, down 63 per cent from the $2.26bn the previous financial year, with revenue down only slightly to $9.3bn.

Managing director Mark Vassella said improved pricing for the company’s Australian-produced steel would also help boost the company’s bottom line for the half.

“Whilst we have been able to benefit from improved prices and spreads, particularly in the US, the improved outlook also demonstrates the strength and resilience of operating a diverse portfolio of high-quality assets,” he said.

Morgan Stanley analyst Andrew Scott noted last week that US steel prices had rallied as much as 90 per since November 2022, with spreads for hot rolled coil at about $US715 a tonne, up from lows closer to $US304 a tonne last year.

BlueScope’s previous guidance was based on benchmark US steel spreads averaging $US350 a tonne in the second half of the year, Mr Scott told Morgan Stanley clients, with spreads so far averaging $US621 a tonne for the year so far.

“For North Star, this represents a $US502m EBIT benefit using BlueScope’s stated sensitivities,” he said.

BlueScope shares closed down 6c to $20.64 on Monday.

The company joined explosives manufacturer Orica and cement maker Adbri in publicly backing Labor’s carbon-reduction package earlier in April, with BlueScope welcoming a review targeting the potential introduction of a carbon border tax and all three saying the new package would give them the confidence to spend to reduce their own carbon footprint.

BlueScope warned in February that a draft version of the safeguard mechanism proposal could put the future of its Port Kembla steelworks at risk, as the company reviewed its plans for a $1bn investment in relining one of the furnaces at the NSW operation. But Mr Vassella said this month that the revised package had “materially alleviated” its concerns, with the company now pressing on with a feasibility study on the blast furnace refurbishment.

Originally published as BlueScope hikes second half earnings by 40pc, driven by improvements in US outlook