Australia | 1:40 PM
BlueScope Steel’s earnings upgrade highlights its exposure to a tightening US steel market, raising hopes for greater shareholder returns.
- Rising steel spreads drive BlueScope Steel’s guidance upgrade
- North Star's US earnings lead the way on steel spreads
- Prospects for greater-than-expected shareholder returns
- Caution around advanced US cycle and softer Australian housing
By Mark Woodruff
A tightening US steel market is bolstering the outlook for global steel and building-products manufacturer BlueScope Steel ((BSL)), with recent peer results pointing to favourable steel spreads.
Section 232 tariffs, which protect US-based producers, and anti-dumping measures are constraining supply, while low inventories, longer delivery times and solid demand support pricing, UBS explains.
The near-term direction of steel spreads, the difference between selling prices and raw material costs, is the main driver of BlueScope’s share price.
Underscoring their importance, management this week raised first-half FY27 underlying earnings (EBIT) guidance to almost $1.1bn from $860m-$960m, around 20% higher than the consensus estimate, driven primarily by stronger US steel spreads.
RBC Capital estimates the North Star and Buildings and Coated Products North America (BCPNA) reporting divisions will contribute respectively around 73% and 15% of BlueScope’s FY27 earnings.
Chief executive Tania Archibald highlighted stronger-than-expected North Star earnings and improved performance from Australian Steel Products (ASP) and BCPNA.
Archibald sees favourable US conditions supporting further gains from industrial investment and economic growth.
Clearly, the earnings upgrade has the potential to strengthen BlueScope’s cash flows, supporting plans to increase returns to shareholders in 2027, Ord Minnett suggests.
In mid-August, management announced plans to return $3 per share, or around $1.3bn, to shareholders during calendar 2027. This comprises $1.30 in ordinary dividends and $1.70 through buybacks, special dividends or other methods, subject to performance and board approval.
Now, UBS believes the earnings guidance upgrade increases the potential for a higher shareholder return.
The BlueScope business in the US
BlueScope supplies construction, manufacturing and infrastructure markets across Australia, North America, Asia and New Zealand.
Products include slab, hot rolled coil (HRC), cold rolled coil, plate and higher-value coated and painted steel products.
Management continues to invest in its growing US portfolio, spanning mini-mill steelmaking and higher-value finished products. BlueScope also operates in Asia’s coated steel markets, primarily through joint ventures.
In North America, BlueScope produces steel at its North Star mill in Ohio, recycles scrap metal, manufactures coated steel products and supplies engineered steel building systems.
Management now anticipates North American earnings will rise by around two-thirds from the second half of FY26, with North Star approaching a 75% increase.
The improvement reflects stronger US steel spreads, now assumed at around US$810/t versus US$750/t previously, alongside higher-than-expected volumes from debottlenecking.
The company also expects earnings from the BCPNA segment to rise by around 50%, supported by stronger Steelscape volumes and realised prices, together with improved margins at Buildings North America.
Steelscape produces coated and painted steel, while Buildings North America supplies engineered steel building systems.
The Australian business
In Australia, Archibald noted that resilient domestic demand and higher-value product sales also drove a stronger-than-expected performance.
ASP division earnings are now expected to nearly double from the second half of FY26, with resilient demand, higher domestic sales volumes and stronger realised margins more than offsetting slightly weaker-than-expected benchmark steel spreads.
This division incorporates Port Kembla steelmaking, coated and painted steel, building products and distribution, including Colorbond, Zincalume, Truecore and Lysaght.
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