Summary
- ASX-listed BlueScope Steel (ASX: BSL) expects 30 per cent higher underlying EBIT in the first half of FY2021 when compared with the numbers of 2H FY2020.
- The expectations for better performance in the current fiscal year are driven by strong domestic demand and improvement in spot prices of steel in East Asia.
- The recovery in the automotive sector in the US and an improved outlook for ASEAN countries indicate robust performance for the industry in 1H FY2021.
Global steel products leader BlueScope Steel Limited (ASX: BSL) anticipates around A$ 340 million in underlying earnings before interest and tax (EBIT) for the first half of FY2021. The figure represents an increase of 30 per cent from 2H FY2020.
The company expects strong domestic demand after relaxation in the restrictions on movement and activities to contribute to the performance. The improvements in East Asian spot prices for steel is expected to impact the earnings as benchmark steel spreads have improved.\
Mark Vassella also pointed at the risks involved with the business in the current market scenario. He did not eliminate the possibility of second and third waves of COVID-19, which could severely impact the demand and supply chain. Moreover, he highlighted the weakness in broader macroeconomic conditions dampening the demand.
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BlueScope Performance Guidance
BlueScope Steel is the largest manufacturer of painted and metal coated steel building products, globally. Moreover, it is the largest steel manufacturer in Australia and the only steel manufacturer in New Zealand.
Segment Outlook
- In the first half of FY2021, the Australian Steel Products segment is expected to register a slightly better result than the second half of FY2020. The Australian steel market is showing strong demand growth as activities in the construction and distribution segments have increased. The coke export and the price realised is expected to improve just like it happened in 2H FY20.
- North Star is producing hot-rolled coils in full capacity and demand is mainly driven by the automotive sector of the US. The company is expecting underlying EBIT for 1H FY21 to be lower than the previous half, as the price spread declined at the end of 2H FY20.
- The outlook for ASEAN and India has improved as business activities are gradually picking up after the COVID-19 disruptions. BlueScope’s Building Products Asia & North America segment are expected to deliver better performance than they did in 2H FY20.
- New Zealand and Pacific Islands is gradually moving back to normalcy in business operations and related activities. The company expects better EBIT performance in 1H FY21 as the company has already write-down the assets in 2H FY20 so there will be lesser depreciation and amortisation.
- The threat of dampening demand and possible disruption in operations is still lying from the further waves of COVID-19 spread across the US and Europe.
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In FY2020, the company reported net profit after tax (NPAT) of A$ 96.5 million and underlying EBIT was A$ 564.0 million including A$ 261.6 million in the second half. Given the decline in steel spreads and the COVID-19 pandemic, the company considered underlying EBIT for the period as a strong result.
BlueScope Steel, in its annual report FY20, discussed key macroeconomics and market risks that may have a significant impact on its overall performance in the near future.
- Weaker Economic Conditions
Prolonged economic downturn of the developed economics and some of the growing economies like India and China can impact the global steel industry.
- Downturn in related industries
The automotive and construction businesses use the company’s product extensively. These industries took a major hit due to the current pandemic. Long-term or permanent closures will definitely have an impact on the company and the industry.
- A Significant drop in steel price
The steel price in the international market significantly determines the financial performance of the company. As the realised price spread in the US declined in 2H FY20, the underlying EBIT for 1H FY21 will remain relatively lower. Any long-term trend in the price will impact the financial well-being of the company.
Stock Information – On 30 October 2020, the stock of BlueScope Steel Limited traded lower by 1.545 per cent from its previous close to settle at A$ 14.660. The company has a market capitalisation of A$ 7.50 billion and has an annual dividend yield of 0.94 per cent.
