The shares of BlueScope Steel Limited (ASX: BSL) will be one to watch today after the steel manufacturing company released sensational preliminary half-year results.
According to the release BlueScope expects underlying earnings before interest and tax for the six months ended December 31 2016 to be approximately $600 million.
Not only does this smash its previous guidance of circa $510 million, but it equates to a whopping 160% increase on the first-half of FY 2016.
The solid result has been driven largely by stronger steel prices and better-than-expected iron ore prices impacting export iron sands' profitability. Furthermore, cost reductions across several of its businesses have been a boost to margins.
It wasn't all positive though. Management is reviewing the carrying value of its assets and expects to recognise an impairment charge of $65 million during the period.
This relates to its China Buildings business, capital expenditure during the half at its Taharoa export iron sands business, and the restructuring of its India engineered buildings business.
But all in all, shareholders will no doubt be delighted with today's announcement which goes a long way to justifying the incredible 133% rise in its share price in the last 12 months.
But as strong as the result is, I'm not overly confident that things will remain so rosy in the medium-term.
I'm not convinced that iron ore and steel prices will remain at their lofty levels for much longer, much to the dismay of BlueScope, Fortescue Metals Group Limited (ASX: FMG), and Rio Tinto Limited (ASX: RIO).
If prices do come tumbling down it could put significant pressure on their respective share prices. For this reason I'll happily sit this one out and focus elsewhere in the market.
