Steel Prices Strengthen
INDUSTRY CONDITIONS
Need To Know
- US steel prices, steel margins rise to 6 months high
- Steel makers pushing through price rises
- Asian steel prices move higher ahead of peak demand season
US steel prices and margins have moved to their highest level since mid-2022 on a strong rebound in auto volumes and improving non-residential construction activity. US steel mills are increasing prices to reflect this outlook. US steel mill margins have jumped ~40% since Jan 2023.
Since late November 2022, US steel mills have lifted prices six times. The latest hike by Nucor would take the benchmark Hot Rolled Coil (HRC) price to $US1,000/t. US peers Cleveland-Cliffs (CLF.US) and United States Steel (X.US) have put through a similar level of price rises. The cumulative increase in prices is nearing US$400/t. US steel mills are using the improved demand outlook, and strength of the order book to lift prices.
We would expect BSL’s North Star operations to be put through similar levels of prices. North Star is ~23% of BSL’s FY23 earnings.
In Asia, the expectation of a restart of activity levels post-China New Year/COVID reopening and peak demand season (May-Aug) is also seeing steel prices move higher. China Steel (2002. TPW) amongst others is rising steel prices. Capacity utilisation is also increasing. The upcoming China People's Congress, on 5 March could see further upward pressure on steel prices as China looks to more pro-growth policies. Asian steel prices directly influence >40% of BSL earnings.
Investment View
BSL share price has fallen ~5% since 1H23 Results in mid-February. The company’s lower guidance on weaker steel prices dampened investors' expectations for the balance of FY23.
Incoming data out of both Asia and the US suggests that steel demand and pricing are improving, potentially leaving BSL guidance looking conservative. BSL is back in the market buying stock as part of its A$500m on-market buyback A$380m remains outstanding.
We believe there is a short-term upside risk to the BSL share price.
BSL currently trades at ~5x EV/EBITDA, well below the long-term average of 9x, and below US steel peers at 6-7x (which is also low relative to history).
On a price-to-book measure, BSL is trading at 0.8x vs the long-term average of 0.95x. These multiples appear to be low, we expected improved steel margins across both Asia and the US through 2023.
Longer-term, increased volumes from the North Star asset, along with the potential for additional capital management have the potential to re-rate the share price. We rate BSL a Buy.
Figure 1: US steel prices and margins have risen to highest level since mid-2022…if maintained this presents upside risk to BSL’s earnings guidance
Stock Overview
Share Price
Company Overview
BlueScope Steel is an Australia-based steel production company. The Company is focused on providing steel materials, products, systems and technologies across North America, Australia, New Zealand, Pacific Islands and throughout Asia.
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