US steel spreads strengthen, prompting BlueScope to raise half-year profit guidance
BlueScope expects EBIT for the first half of FY2027 to be close to A$1.1 billion, above its previous guidance and market consensus. JPMorgan believes the US North Star business accounted for most of the increase, and that profit remains highly sensitive to steel spreads.
Original source：J.P. MorganFirst published on Unhidea：Original source date：
Key takeaway
Wider US steel spreads and increased production prompted BlueScope to raise its profit guidance, but the extent of the profit increase still depends on spreads and output.
How much was profit guidance raised?
BlueScope expects EBIT for the first half of FY2027 to be close to A$1.1 billion, compared with previous guidance of A$860 million to A$960 million and market consensus of A$924 million.
The company raised its guidance mainly because US steel spreads were stronger than previously assumed, supporting the North Star business; performance also improved at its North American coated products business BCPNA and Australian steel products business ASP.
Where did most of the profit increase come from?
The company raised its assumed US steel spread from US$750 per tonne to US$810 per tonne. A wider spread means a larger gap between steel selling prices and related input costs, directly affecting North Star's profitability.
JPMorgan estimates that North Star contributed approximately A$140 million to A$150 million of the roughly A$190 million profit increase from the midpoint of the original guidance; about eighty percent of that contribution came from spreads, with the remainder from the company's efforts to sell more output at spot prices.
The bank estimates that ASP and BCPNA each contributed approximately A$20 million in incremental EBIT, while the remaining businesses collectively were broadly in line with previous guidance.
How will changes in spreads affect future profit?
JPMorgan estimates that for every US$10 per tonne change in the US steel spread, BlueScope's EBIT changes by approximately A$21 million per half-year. ASP's sensitivity is broadly similar, but depends on the factors driving the change in spreads.
As of 23 October, North Star's lagged indicator spread was US$927 per tonne, up 2% from a week earlier and 93% from a year earlier; over the same period, ASP's domestic lagged indicator spread was US$221 per tonne, up 2% from a week earlier and 11% from a year earlier. The two indicators use different forward-looking and lagged windows, which also differ from the US spread assumption the company uses for guidance.
