ESG Focus | Sep 28 2022
This story features BLUESCOPE STEEL LIMITED, and other companies. For more info SHARE ANALYSIS: BSL
BlueScope Steel retains its 2030 and 2050 emissions targets but analysts say a lack of available and affordable new energy technology continues to be the main barrier to decarbonising steel.
-BlueScope Steel recently held its first-ever ESG Briefing Day
-Net-zero-emission steel making remains reliant on emerging technologies to capture alternative energy sources
-Such technologies are unlikely to be readily available before 2030
-Given technological barriers, improving existing processes will be essential for reaching nearer-term targets
By Danielle Austin
Decarbonisation remains a challenge facing the steelmaking industry and BlueScope Steel ((BSL)) provided updates on key initiatives at its recent inaugural ESG Briefing Day.
While many producers are setting and working towards decarbonisation goals, BlueScope says the path to net zero emissions is reliant on emerging technologies. BlueScope and its peers remain constrained by available and affordable technology for the production processes of alternative energy sources, particularly hydrogen.
With the company’s three steelmaking sites, Port Kembla, Glenbrook and North Star, accounting for 92% of its total Scope 1 and Scope 2 emissions, its steelmaking operations offer the most potential for emissions reductions. Long-term, BlueScope Steel is committed to a net-zero target by 2050.
Short-term, the company is targeting a -12% reduction in its steelmaking emissions and a -30% reduction in non-steelmaking emissions by 2030, and has committed -$150m to the initiative. The company remains on track to meet this goal by achieving an annual -1.0% emission intensity reduction, but the Australian government has proposed a more aggressive target of an annual -3.7% reduction.
Given breakthrough technologies for emissions-free steelmaking are unlikely to be available before 2030, optimisation of existing processes will be essential to achieving shorter-term targets.
BlueScope Steel is engaged in several initiatives to address the technology gap, including a collaborative concept study with Rio Tinto ((RIO)) in the Pilbara to assess the use of direct reduced iron (DRI) to produce low-emission iron ore. Other projects include a collaboration with both industry and government partners to develop a hydrogen hub.
Project pipeline prepares BlueScope Steel for future decarbonisation
The steelmaking industry faces an uncertain demand outlook given the macroeconomic environment is guiding to a slowing economy, which could dampen steel demand. Despite this, failing to achieve decarbonisation targets could prove a costly exercise for producers like BlueScope, as they will be required to purchase carbon credits to offset emissions.
Of the two database brokers who have reported on BlueScope Steel’s ESG Briefing Day, both are equivalent Buy rated. These brokers have an average target price of $22.30. JP Morgan and Jarden, two brokers not monitored daily by FNArena, also provided updates. While JP Morgan did not provide a rating, Jarden is Buy equivalent.
JP Morgan drew attention to BlueScope Steel’s pipeline of climate-concerned projects, noting the company's near-term focus is on optimising processes and reducing emissions from its operations in order to meet targets.
Longer-term, the broker feels the technology gap will affect not only BlueScope Steel’s ability to reach decarbonisation targets, but the entire steelmaking industry.
UBS (Buy, target price $22.60) observes that some of BlueScope's peers are pushing a “revolution in green steel”, but prefers BlueScope’s incremental approach to emissions reduction. The broker expects this approach, alongside lobbying for use of Australian steel for renewable energy infrastructure, will leave the company well positioned in the medium term.
Outside of its decarbonisation efforts, and despite concerns about a subdued economic backdrop, UBS continues to see value in BlueScope. The broker’s opinion is underpinned by the company’s core Colourbond offering, and the segment’s robust pricing and pipeline.
Noting BlueScope Steel has engaged in discussions with the government about its more ambitious decarbonisation targets across the industry, Jarden (Overweight, target price $20.80) believes a white paper will be released in December providing more certainty on industry emissions targets.
This broker expects BlueScope Steel’s first half to be tracking at the mid- to high-end of its guidance range.
Ord Minnett (Buy, target price $22.00) also highlighted the technological challenges the company faces on its path to zero emissions.
BlueScope shares have fallen from circa $25 this time last year to near $15 this month as investors worry about demand from China and the potential of a global recession on the horizon. Six of the seven stockbrokers monitored daily actively cover the company which currently translates into four Buy (and equivalent) ratings and two neutral/hold ratings.
FNArena's consensus price target of $20.99 suggests potential upside of 37%-plus from the present share price.
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