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2 reasons why BlueScope Steel Limited (ASX:BSL) share price is zooming higher than the ASX

The BlueScope Steel Limited (ASX: BSL) share price is enjoying a double tailwind that is pushing the stock towards the top of the leader board.

The BlueScope share price surged 8.9% to $12.23 in morning trade and is the second best performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index after takeover target Graincorp Ltd’s (ASX: GNC) share price.

The BSL share price is running hard along with other materials stocks. The BHP Billiton Limited (ASX: BHP) share price, Fortescue Metals Group Limited (ASX: FMG) share price and South32 Ltd (ASX: S32) share price are up by more than 3% each at the time of writing.

A trade war ceasefire between the US and China is spurring the advance with US President Donald Trump and China’s leader Xi Jinping agreeing not to impose new tariffs on imports from each other’s countries for 90 days while they work out a more permanent agreement.

Double Tailwind

Investors were worried that an escalation in the trade war between the world’s two biggest economies would cut global economic growth, particularly in China.

That would be particularly bad news for our raw materials producers and the ceasefire is giving hope that the price of steel and iron ore will start to rise again.

But this isn’t the only reason for BlueScope’s strong performance. The steel products maker announced a new $250 million share buyback as management boasted about its strong cash flows that gives it room to do the buyback, invest to grow its current business and acquire other companies.

BlueScope explained that it is approaching its goal of having $200 million to $400 million of cash on its balance sheet that is net of debt and the fresh share buyback program comes on the back of the previous share buyback program, which was completed in last month.

This is a good time to be buying back stock given that BlueScope’s share price had collapsed by over 30% in the last six months on worries about contracting US and Asian steel spreads.

An unexpected slowdown in US housing construction was also weighing on the shares.

Foolish Takeaway

However, BlueScope is more exposed to infrastructure and commercial property construction and the risks of weakening steel prices are more than reflected in the company’s current share price.

The stock is cheap and I believe it makes for a good buying opportunity, especially given the de-escalation in trade tensions between US and China.

Trade relations between the two giants aren’t out of the woods, but I think BlueScope should have a clear run upwards for the next two to three months.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, BlueScope Steel Limited, Fortescue Metals Group Limited, and South32 Ltd. 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 Scott Phillips.

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