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Why the BlueScope (ASX:BSL) share price is surging 6%

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The BlueScope Steel Limited (ASX: BSL) share price is rocketing higher this morning after the company released a trading update. At the time of writing, the BlueScope share price is up 6.0% to $17.83 after reaching a new, multi-year high of $18.24 during the opening minutes of trade.

Upgraded guidance

According to this morning’s release, BlueScope reported strong demand for its steel products. Although most of the heavy lifting came from its Australian segment, BlueScope upgraded its forecasts for the first half of FY21.

Underlying earnings before interest and tax (EBIT) is projected to be around $475 million. BlueScope noted that this includes the contribution made from the industrial warehouse property sale that was executed recently. The new guidance represents a rise of 80% over the second half of FY20.

What else did BlueScope report today?

The BlueScope share price is on the move today after the company advised its Australian segment is on track to deliver a substantially better result than the prior period. BlueScope reported that demand for domestic construction and distribution remains strong, particularly for coated and painted products. Furthermore, export coke levels are expected to be above what was attained at the end of the last financial year.

In the United States, North Star, owned by BlueScope, continues to ship steel at full capacity. A major scheduled maintenance outage was completed in the backdrop. Since the end of the second half of FY20, there has been a significant increase in Midwest hot rolled coil prices and other raw materials costs. BlueScope acknowledged that, as there is a general lag between market price and sales, underlying EBIT for North Star is predicted to be lower than the second half of FY20.

The building products segment in Asia and North America is anticipated to produce a better performance than the last results recorded. In ASEAN (Association of Southeast Asian Nations) alone, EBIT is predicted to be at least double that of the second half of FY20. The North America business is matching current estimates similar to the prior period.

Moving to the Buildings North America division, the engineering business has been growing consistently. This was supported by the $40 million property sale conducted earlier this month.

New Zealand and Pacific Island’s performance has been gaining traction in the second-half due to operations resuming post COVID-19. The company stated that it is still continuing to implement a restructure of the business. Depreciation and amortisation is expected to be roughly $15 million to $20 million lower compared to the second half of FY20.

What did management say?

BlueScope managing director and CEO, Mr Mark Vassella, commented on the performance achieved so far. He said:

All operating segments are performing well and momentum has continued to build as we approach the end of 1H FY2021. Residential alterations and additions activity, demand for detached new housing, and growth in demand for e-commerce warehouse and logistics facilities are all robust and US automotive industry demand is recovering strongly.

Demand strength, particularly in the Australian market, has continued to outpace our expectations. We now expect that Australian construction and manufacturing activity will remain strong, driving elevated domestic steel despatches for the balance of 1H FY2021.

Benchmark steel spreads in East Asia and the Midwest US are currently above longer-term averages as the beginning of 2H FY2021 approaches. Nonetheless there remains uncertainty around spreads and volumes given the risks of the evolving impact of COVID-19 which could disrupt demand, supply chains and operations, and broader macroeconomic activity.

BlueScope share price summary

The BlueScope share price is making a stunning comeback since falling to as low as $8.03 in March. Shares in the steel making company reached a new multi-year high yesterday of $17.26 before surging again to a fresh high following today’s release.

Based on the current BlueScope share price, the company has a market capitalisation of $8.5 billion and a price-to-earnings (P/E) ratio of 89.

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Motley Fool contributor Aaron Teboneras has no position in any of the 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 Scott Phillips.

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