Why the Bluescope Steel Limited share price surged 12% today

Credit: H is for Home

Shares of Bluescope Steel Limited (ASX: BSL) surged as much as 12% today after the steel producer upgraded its earnings guidance. The shares hit a high of $6.55, although they are sitting 9.2% higher at $6.39 at the time of writing.

In February, the company said it expected underlying EBIT for the six-months ending 30 June 2016 to be around $209 million. However, the company now expects underlying EBIT to be around $270 million, which represents a 29.2% improvement on the initial guidance.

Notably, underlying EBIT refers to earnings before interest and taxes are accounted for, while it also strips out one-off charges.

It said: “The stronger performance has been driven largely by earlier delivery of targeted cost reductions, higher steel and iron ore prices, better than anticipated Australian domestic despatches and better than expected margins in the international businesses.”

Indeed, although iron ore prices dipped as low as US$38 a tonne late in 2015, prices have rebounded strongly with the commodity now fetching US$54.89 a tonne, according to The Metal Bulletin. It’s too early to tell whether those prices can be sustained, but it is certainly allowing Bluescope to improve its performance in the meantime.

Notably, the company is also benefiting from cost-cutting initiatives. Indeed, companies across the entire sector have been forced to improve their operating efficiencies in order to survive the lower price environment.

Elsewhere in the iron ore sector, shares of Atlas Iron Limited (ASX: AGO) have also risen 20%, while industry heavyweights BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) have both fallen more than 2% each.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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