Morgan Stanley is convinced that the BlueScope share price is poised to jump higher. Here’s why…
The post Why the BlueScope (ASX:BSL) share price could be set to jump higher appeared first on The Motley Fool Australia. –
BlueScope Steel Limited (ASX: BSL) share price is outperforming the market today on the belief that its shares are about to race higher.
That bullish view is from Morgan Stanley, which reiterated its “overweight” recommendation on the steel maker.
The BlueScope share price responded well to the broker’s report as it jumped 1.8% to $22.89 during lunch time trade.
In contrast, the S&P/ASX 200 Index (Index:^AXJO) dipped 0.1% at the time of writing as economic growth concerns weighed on the market.
BlueScope share price to rise with steel
But these worries don’t apply to BlueScope. Morgan Stanley pointed to strong US steel prices for its near-term optimism towards the BlueScope share price.
“US HRC [hot rolled coil] prices have broken US$2,000/t and Asia prices have rallied back above US$900/t,” said the broker.
“On a BSL blended basis steel spreads have increased to record highs.”
How much higher can the BlueScope share price go?
That is great news for the BlueScope share price as it has historically displayed a strong correlation with the blended steel price. The current spreads suggest further upside for BlueScope, noted Morgan Stanley.
If the broker is right, BlueScope’s ASX shares could rally another 15% plus from here. This is despite the fact that its shares have doubled in value over the past year.
Morgan Stanley’s 12-month price target on BlueScope is $27 a share.
Rising steel prices lift all boats
But strong steel prices aren’t only good news for BlueScope. They also bode well for our iron ore producers.
Iron ore, which is an essential input to make steel, hit a record high of around US$240 a tonne due to strong steel prices.
Chinese steel mills are more than happy to buy the ore at high prices as they can make strong margins on their products.
Big dividends expected
It also reinforces the view that these miners are poised to pay bumper dividends when they release their results next month.
The only issue to watch for is cost inflation. Rio Tinto’s latest production update pointed to higher expenses. Inflation pressures won’t be only confined to the mining sector either, and I think it will be a prominent emerging trend in August.
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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.