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Why the BlueScope share price is rallying today

Brendon Lau
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There aren’t many ASX shares trading in the black today as the bulls retreated on a report that the US and China may not sign their much anticipated first-phase trade agreement till 2020.

Just about every sector apart from energy is trading in the red with the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index losing 0.5% of its value in morning trade.

Materials stocks are among the notable losers with the BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price falling around 0.6% each at the time of writing.

One bright spot in the sector is the BlueScope Steel Limited (ASX: BSL) share price. It jumped 2.2% to $14.28 to become the fifth best performer on the ASX 200 following its outlook at its annual general meeting.

Sticking to guidance

Expectations are set pretty low given that the steel products maker was hit on a few fronts. A slowing global economy, its exposure to both the US and China and worries about shrinking profit margins across the industry have whipsawed the stock for much of the year.

But bargain hunters are starting to take notice. Management reiterated its first half FY20 guidance for a 45% drop in underlying earnings before interest and tax (EBIT) compared to 2HFY19’s figure of $499 million.

The decline is driven by weaker commodity steel prices and spreads across the group’s steel-making businesses in the US, Australia and New Zealand.

Signs of improvements

But that news has been flagged and investors are excited by signs that conditions are improving. Management indicated that demand for its products in key markets “remains stable”.

What’s more, its US-based North Star business continues to perform well with modest improvements in raw material costs and selling prices.

It doesn’t take much to excite the market given the low expectations clouding the stock, and the news is important to sentiment as management has committed US$700 million to expand North Star.

More pleasing news

There’s also good news for the Australian Steel Products and Asia Building Products businesses.

“Domestic volumes are tracking slightly better than we expected, driven by a modest improvement in the building segment and the distribution channel,” said BlueScope’s chief executive Mark Vassella.

“In Building Products, our China business continues to perform strongly with robust demand and margins. 

“India is performing well with higher margins offsetting lower volumes in light of the current soft macroeconomic environment, and North America is performing in line with expectations.”

On the downside, it’s operations in Thailand and Malaysia are putting pressure on margins and volumes, while the second half result for its New Zealand and Pacific Steel division is expected to be lower than previously thought due to softening infrastructure demand.   

The post Why the BlueScope share price is rallying today appeared first on Motley Fool Australia.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, BlueScope Steel Limited, and Rio Tinto Ltd. Connect with him on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019