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BlueScope Steel downgrades 1st half earnings amidst softening demand

BlueScope Steel (ASX:BSL) has, at long last, downgraded first-half earnings, weeks after US-based steel rivals revealed cuts to their forecasts and actuals due to weakening margins and spreads as demand softens.

The company informed the market on Friday that December half earnings are expected to be in the range of $620 million to $670 million, well below the previous guidance of $700 to $770 million.

The culprit for the downgrade is its now major profit center – the recently expanded North Star electric arc furnace (EAF) and rolling mills in the US state of Ohio. BlueScope admitted that softer prices, weaker demand, and higher energy costs will cause first-half earnings to halve.

“The key driver of the revised guidance is North Star, where BlueScope now expects a result around half that of 2H FY2023 (The June 30 half). This is predominantly due to softer than expected benchmark steel prices and spreads across the half-year, with US mini-mill benchmark spreads now expected to be around US$100/t lower than 2H FY2023,” the company told the ASX.

Despite this weakening, BlueScope said North Star was still operating at full capacity, “with the ongoing ramp-up of the expansion project progressing well.”

“In addition, the project sale by the US-based BlueScope Properties Group that was flagged in 1H FY2024 guidance in August has been delayed and is now expected to close during 2H FY2024.”

“All other reporting segments are expected to perform broadly in line with the guidance provided at BlueScope’s FY2023 results release in August 2023. This includes the Australian business, where softer than expected lagged benchmark spreads have been largely offset by stronger realized pricing and a favorable raw materials mix.”

BlueScope said the revised guidance is subject to its usual assessment of spread, foreign exchange, and market conditions.

The downgrade had little impact on the shares’ performance on Friday, and they edged higher in pre-noon trading.

BlueScope said it will provide more detail on trading conditions at its 2023 Annual General Meeting, which will be held on November 21.