BlueScope (BSL) manufactures steel products (such as “Colorbond”) and is known for its operations down the road from Sydney in the Illawarra. When we consider the likely implications of a Trump Presidency on BSL the numbers stack up favourably as they compete against “cheap” Chinese imports:
- Trump is set to impose enormous tariffs on Chinese steel which should make BSL far more competitive – in FY24 around 46% of BSL’s revenue was generated in North America.
The tariffs should create a “moat” around US domestic steel manufacturers and should see industry profitability improve. Trumps goal of increasing US manufacturing should benefit BSL who already operate 5 businesses in North America employing around 4,000 people. Also, residential construction levels should start to recover in Australia as the country struggles to satisfy the burgeoning population. BSL is a very cyclical business with earnings oscillating between zero and $4.50 per over the past twenty years. Not surprisingly periods when Chinese exports are absent from the market tend to be periods of higher industry profitability.
- We like BSL as we head into Trumps 2nd term but aren’t adding it to our Hitlist at this stage.
Last month BSL warned that earnings in the current half will be 25% lower than expected as Chinese exporters flood the market with cheaper products. However, while this major headwind may be removed/diluted from BSL’s primary markets under Trump the stock has already recovered all of its knee-jerk losses – China produces about 55% of the world’s steel. As always there’s a flip-side to any investment discussion and in this case it’s whether a return to trade wars could slow global growth. While very positive for US shares in the short term, the story is less clear for international markets, which may feel a knock on hit from potential tariffs.
- We like BSL into 2025 but the risk/reward isn’t exciting around $22.
MM is cautiously bullish towards BSL
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