ASX-listed steelmakers under pressure after Nucor's profit warning

Thu 15 Sep 22, 3:44pm (AEST)

Key Points

  • The largest US steelmaker downgraded its third quarter earnings amid weaker margins and soft demand
  • BlueScope Steel and Sims shares slump further after Wednesday's selloff
  • Approximately 50% of BlueScope's earnings come from its US-based North Star steel business

Shares of ASX-listed steelmakers BlueScope Steel (ASX: BSL) and Sims (ASX: SGM) are under pressure on Thursday after Nucor downgraded its third quarter outlook for the key industrial metal.

The largest US steelmaker said on Wednesday it expects third quarter earnings to be in the range of US$6.30 to US$6.40 per share, well below the US$7.74 per share estimates by Wall Street analysts, according to Bloomberg.

"We expect the steel mills segment earnings to be considerably lower in the third quarter of 2022 as compared to the second quarter of 2022, due to metal margin contraction and reduced shipping volumes particularly at our sheet and plate mills," Nucor said in a statement.

Encouragingly, the company expects its steel products segment to have "another strong quarter in the third quarter of 2022, with earnings roughly in-line with the second quarter of 2022."

Still, Nucor shares tumbled -11.3% on Wednesday, the largest decline since March 2020.

A glance at BlueScope

Approximately 50% of BlueScope's FY22 earnings came from its US-based North Star steel business, which ranks fifth by volume of hot rolled coil (HRC) in North America.

North Star is considered a 'highly productive mini-mill' operation that produces approximately 2m tonnes of hot rolled coils from electric arc furnaces using scrap metal, pig iron and alloys.

The Nucor news further weighs an already battered BlueScope share price, down -22.7% year-to-date.

BSL chart
BlueScope Steel price chart (Source: TradingView)

Elsewhere, BlueScope's Australian Steel Products segment which accounted for 34% of FY22 earnings is also under pressure amid a decline in building activity.

The total number of dwellings approved in Australia fell -17.2% in July following a -0.6% decrease in June.

"The decrease in the total number of dwellings approved in July was led by a sharp decline in approvals for private sector dwellings excluding houses, which dropped by 43.5 per cent. This was the lowest level recorded since January 2012 and was driven by a lack of approvals for large apartment developments," said Daniel Rossi, Head of Construction Statistics at the ABS.

Unsurprisingly, BlueScope expects first-half FY23 earnings to be in the range of $800m to $900m compared to $2.2bn in the first-half of FY22. The sharp decline is "driven particularly by significantly lower Midwest US HRC steel spreads and weaker Asian HRC steel spreads."

On a side note, declining demand for steel also trickles down to the raw material that's used to make it - iron ore.

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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