BlueScope has smashed its profit forecasts on rising steel prices

Johannes Eisele/AFP/Getty Images

BlueScope has announced a profit upgrade on stronger steel prices and cost cutting.

EBIT (underlying earnings before interest and tax) for the six months to December is now expected to be $600 million, up from November’s guidance of at least $510 million.

This represents growth of about 160% on the first half of the 2016 financial year.

Bluescope shares have been surging since the election of Donald Trump as US president. The shares closed yesterday at $10.38, up from $7.22 in November. The company’s US business unite could benefit from promised infrastructure work in the US.

The steel maker’s business has been improving since October 2015 when it announced what it called a game changer agreement with its employees to cut 500 jobs and freeze wages for three years.

The agreement was a significant part of the company’s $200 million cost cutting target and kept the Port Kembla steelworks south of Sydney from shutting.

In 2016, BlueScope doubled full year underlying profit to $293.1 million. Sales were up 8% to $9.18 billion and the statutory net profit was up 160% to $353.8 million.

In a market update today, the company says its building products unit has had a strong half, particularly in North American. The India business also saw positive earnings growth with higher margins and volumes.

The company says the overall improved performance since AGM in November is mainly due to better steel prices, the impact of stronger than expected iron ore prices and productivity improvements, including further cost cutting.

However, the company foreshadowed an impairment charge of about $65 million on its China buildings business where manufacturing sites are being reconfigured or closed, capital expenditure during its Taharoa export iron sands business and restructuring of the India engineered buildings business.

BlueScope’s results for the six months to December 2016 will be released February 20.

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