The party didn't last long for our listed steel products maker with the BlueScope Steel Limited (ASX: BSL) share price crashing lower today after last week's strong showing.
The BSL share price plunged 4.8% to $12.00 a share in late afternoon trade and is the fifth-worst performer on the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index at the time of writing.
Only the Independence Group NL (ASX: IGO) share price, Mineral Resources Limited (ASX: MIN) share price, Iluka Resources Limited (ASX: ILU) share price and Sandfire Resources NL (ASX: SFR) share price have fallen harder.
Metal fatigue
Worries about the health of Chinese steel mills are hurting sentiment towards BlueScope today even though the stock bounced hard last week when the company reaffirmed its earnings guidance at its annual general meeting.
The big sell-off in commodity stocks, namely, energy and mining, is adding a further drag to BlueScope.
There's also speculation that BlueScope won't be able to avoid a consensus earnings downgrade even as it reiterated its first half FY19 earnings numbers given the ongoing weakness in steel prices. It doesn't help that management isn't giving guidance for 2HFY19.
But this could turn out to be a good opportunity to buy the stock for those with a steel stomach.
What the experts are saying
Top brokers have mostly come out to back the stock as a "buy" despite the ongoing risks.
Credit Suisse says the big drop in Asian steel spreads to circa US$240 a tonne from a peak of US$375 a tonne still leaves BlueScope with around US$100 a tonne in the black.
It also noted that the Chinese mandated winter cuts to steel production in that country are just about to kick in and that should put a floor on steel prices.
Credit Suisse has an "outperform" rating on the stock and has lowered its price target by 30 cents to $18.70 a share.
Macquarie Group Ltd (ASX: MQG) also cut its price target but it did so with greater fervour even though it stuck with its "outperform" recommendation on the stock.
Higher cost assumptions, a derating in the sector, exchange rate forecasts and lower Australian steel prices prompted the broker to cut its price target to $16.55 from $21.40 a share.
Even the bears are conceding. Citigroup upgraded its "sell" recommendation on the stock to "neutral" as it believes BlueScope's share price has been punished enough.
