Ground Breakers: BlueScope Steel rakes in record $2.81 billion profit and lithium stocks are catching the eye

Australia’s leading steelmaker BlueScope Steel reports record NPAT of $2.81 billion for FY22
Falling steel prices in the US and closer to home will see EBIT fall under $1b in the next half
Lithium miners lead the gains as mining stocks lift in early trade

BlueScope Steel (ASX:BSL) has never been as profitable as it is today, after announcing a record $2.81 billion net profit after tax for FY22.

Powering a 25c dividend and $500 million on market share buy-back, the reported NPAT is 135% up on FY21, with underlying EBIT of $1.58b for the second half beaten only by BlueScope’s first half return of $2.2b.

BSL has also exhausted its Australian tax losses, meaning it will be in a position to frank dividends next year. All positive things.

CEO and MD Mark Vasella described the result as “outstanding”, ranking it the best since BlueScope flew the coop and split off from BHP (ASX:BHP) 20 years ago.

“We saw continued strong demand for our steel products and solutions despite recent macroeconomic and geopolitical volatility. We worked hard to improve our service levels which have been impacted by supply chain and pandemic related disruptions,” Vasella said.

“It’s truly heartening to see our people continue to step up, to serve our customers, and to operate safely and with great resilience. This record result is their record result.

“Operating cash flow, after capital expenditure including on the North Star expansion, was $1.71 billion. From this, investments of $1 billion were made in the US acquiring the MetalX ferrous recycling business and the Coil Coatings business. These were well considered and well executed investments in our US growth plan.

“I’m pleased to state the balance sheet still remains strong with $367 million net cash at 30 June 2022. Our working capital remains elevated in the context of strong demand and prices and ongoing supply chain disruptions.”

BlueScope’s Australian steel division delivered an underlying EBIT of almost $1.3b, up 92% on the previous year, but its biggest earnings driver was the North Star business in North America, where underlying EBIT hit $1.9b, up 181% YoY.

Construction at the 850,000tpa North Star mini-mill expansion is substantially complete, BSL said, with work beginning on plans to add a further 500,000tpa of incremental steel production.

Steel demand slows

While BlueScope is in good health, it will see a continuation in the slide in EBIT from the second half into the first half of 2023.

Rising interest rates, inflation and supply chain disruptions have hit steel prices across the world, with BlueScope expecting underlying EBIT to fall to between $800-900m, “driven particularly by significantly lower Midwest US HRC steel spreads and weaker Asian HRC steel spread,” the company said.

BlueScope lifted more than 5% on its results release as the broader materials sector enjoyed a strong morning, up 1%.

Lithium stocks were among the big movers, with Pilbara Minerals (ASX:PLS), Allkem (ASX:AKE) and MinRes (ASX:MIN) all heavily green.

Core Lithium (ASX:CXO) was up more than 10% while investors were bullish on high-grade iron ore miner Grange Resources (ASX:GRR), which climbed 5.37% at 1pm AEST.