What happened to the BlueScope Steel share price?
There you have it…a 89% rise in full-year earnings for BlueScope Steel Limited [ASX:BSL]. BSL has been on my watchlist for a few months.
It has been a solid momentum stock for some time. Investors have been pricing in yesterday’s overwhelmingly positive result for some time. By the time the announcement came yesterday, the stock rose by more than 7%.
Today, the stock surged another 5.35% by market open.
Why did BSL shares do this?
Despite the ‘pessimists’ inside all of us, it does not take a genius to perceive the reflation in the commodity sector this year. In the last few months, commodities have stolen the ‘show’.
Some miners have done extremely well from a combination of cost controls and the commodity reflation. If you count gold, it has been surging well above other commodities this year, but it is itself also a type of commodity.
Steel prices surged about 40% this year. Properties and construction have obviously helped demand in Australia; and the broad demand-supply balance has been improving.
However, does that mean the rebalancing is over? No, fundamentals do not show that; oversupply of steel is present.
That does not mean prices won’t reflate. It should mean volatility along a general slow reflation.
What now for BlueScope Steel Limited?
Right now, energy prices are flirting with levels between $45–50 a barrel. This volatility should not be a surprise to you. On the sentiment side, factors such as Brexit simply don’t help. On the fundamentals, the supply side has been stubborn, with limited certainty in global demand.
Investors should always remember one thing — always buy quality stocks. Quality can mean a great deal of things. BSL is the perfect example of a quality company.
It is strong fundamentally; therefore, investors feel positive about the stock, and they buy into it.
The quality stock gathers momentum as the market discovers it. And now, both value and momentum investors are being rewarded for their positions in the company.
Analyst, Emerging Trends Trader