BlueScope (ASX:BSL) share price rises on earnings upgrade

High steel demand and prices are putting BlueScope in a good position…

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The BlueScope Steel Limited (ASX: BSL) share price has been reinvigorated on Thursday. This comes as the steel producer reveals better than expected performance in an announcement this morning.

At the time of writing, BlueScope shares are trading 2.73% higher to $20.68. This means the BlueScope share price is now 20.9% away from its 52-week high.

What did BlueScope announce?

During a period where China’s steel output has been at multiyear low levels, BlueScope appears to have filled the gap in supply.

According to its release, the company now expects its first-half earnings for FY2022 to be above previous forecasts. BlueScope mentioned it is benefitting from strong spreads, prices, and demand amidst the ongoing challenges of the COVID-19 pandemic.

As a result, underlying earnings before interest and tax (EBIT) for H1 FY22 are expected to be between $2.1 billion to $2.3 billion. For context, the company’s previous guidance ranged between $1.8 billion to $2 billion. It is worth mentioning that this forecast came with a disclaimer, with forecasts being subject to foreign exchange and market conditions. As such, the BlueScope share price is gaining attention on Thursday.

Furthermore, the steelmaker provided a few other contributing factors to the improved outlook. These included:

  • Stronger than expected hot rolled coil prices and spreads at its North Star mini-mill in the United States
  • Improved margins and domestic demand for steel products from its Australian Steel Products brand
  • Continued strong demand and pricing for its United States coated products business

These beneficial impacts mean BlueScope is seeing a further increase in net working capital employed in the business during the current half.

Management commentary

Commenting on the earnings upgrade, BlueScope managing director and CEO Mark Vassella said:

The performance continues to demonstrate the value of our business model, and further underpins our capacity to invest for long-term sustainable earnings and growth, to position the business for a low carbon future and to deliver solid returns to shareholders.

For investors seeking more details, the company stated it will provide more information at its 2021 annual general meeting on 18 November.

On another note, reports are circulating that China’s steel production is beginning to recover. In some areas, power restrictions have eased, allowing steel mills to increase output again.

BlueScope share price recap

Shareholders of BlueScope have enjoyed market-beating returns over the past 12 months. While the S&P/ASX 200 Index (ASX: XJO) is up 19.7% in the last year, the BlueScope Steel share price has returned 37.2%.

Despite the strong share price appreciation, BlueScope is currently trading on a price-to-earnings (P/E) ratio of 8.91.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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