The BlueScope Steel Limited (ASX: BSL) share price is up even though the $8 billion steelmaker downgraded its guidance.
This steel business has a presence in both the US and Australia.
FY24 guidance
The company said that it now expects underlying EBIT (EBIT explained) for the first half of FY24 to be in the range of $620 million to $670 million. This is lower than the previous guidance range of $700 million to $770 million.
BlueScope explained that the key driver of the revised guidance is North Star, where BlueScope now expects a result similar to that of the second half of FY23.
What happened?
This downgrade is due to weaker-than-expected benchmark steel prices and spreads across the half-year, with US mini-mill benchmark spreads now expected to be around US$100 per tonne lower than the second half of FY23.
What’s a spread? One definition is: the price difference between a raw material commodity and the price of a finished product made.
However, the company said that despite the softening spread environment, the North Star business “continues to operate at full capacity utilisation”, with the ongoing ramp-up of the expansion project “progressing well.” It’ll be interesting to see what happens with the BlueScope share price and profitabiity in the medium-term as a result of that decision.
Anything else?
The company disclosed that the project sale by the US-based BlueScope Properties Group which was expected to occur in the first half of FY24 has been delayed and is now expected to close in the second half of FY24.
BlueScope said that all other reporting segments are expected to “perform broadly in line” with the guidance provided at BlueScope’s FY23 result release in August 2023. This includes the Australian business, where softer-than-expected benchmark spreads have been “largely offset” by stronger realised pricing and favourable raw materials mix.
Final thoughts on the BlueScope share price
The steel business noted its guidance is still subject to spread, foreign exchange and market conditions. It will provide more detail on trading conditions at the 2023 annual general meeting (AGM), which will be held on 21 November 2023.
It’s not the sort of business I’d buy for my own portfolio, nor is it one that I’d usually suggest in my opinion-related pieces.
However, I do think investors can make decent returns when buying a cyclical share at a low point in the cycle and selling it as it recovers through the upswing of the cycle. We’re probably not at that low point yet, but it is down almost 20% from early September.
