Will BlueScope Steel Shares Continue To Rally? Analyst Points To Further Upside

BlueScope Steel shares (ASX: BSL) have been a strong outperformer this year, trading at A$31.46, up 30.32% YTD, positioning the stock as one of the stronger performers in the ASX materials sector. Whilst holders have seen the share price pull back to an almost perfect 10% correction, there could yet be further life in the rally yet, with the most recent couple of sessions seeing a 3.5% bounce. Now adding to the bullish fire is a reinstatement of coverage from Goldman Sachs, and one which suggests plenty of upside.

Goldman Sachs reinstated coverage of BlueScope Steel with a Buy rating and A$37.70 price target, suggesting the stock’s 30% year-to-date rally may have further room to run as steel spreads and earnings momentum improve. Goldman’s A$37.70 target implies approximately 20% additional upside from current levels, providing a fresh valuation anchor for markets that have been reassessing the steelmaker’s prospects following a turbulent takeover period.

Behind The Analyst Call

Goldman Sachs highlighted three key pillars supporting its bullish stance: improving steel price spreads, strengthening earnings momentum, and a robust balance sheet generating rising free cash flow. The analyst’s note emphasises that the margin between steel selling prices and raw material costs has been trending positively, a critical metric for integrated steelmakers like BlueScope that are sensitive to movements in iron ore and coking coal prices.

The company’s financial position has strengthened considerably over recent quarters. BlueScope announced a special dividend of A$1.00 per share in early 2026, returning A$438 million to shareholders with an ex-dividend date of 20 January 2026 and payment scheduled for 24 February 2026. This cash distribution came on top of regular dividends and prior on-market buybacks totalling approximately A$293 million, demonstrating management’s commitment to shareholder-friendly capital allocation while maintaining investment capacity for growth and decarbonisation initiatives.

The company has also extended its productivity program by A$150 million into FY26, coinciding with the formal commencement of new CEO Tania Archibald. RBC Capital Markets estimated this incremental efficiency initiative could lift BlueScope’s share price by approximately A$3 if successfully executed, providing a company-specific earnings lever less dependent on cyclical steel price movements.

BlueScope’s recent journey has been shaped significantly by takeover interest. The company received and rejected multiple unsolicited proposals from a consortium led by Seven Group Holdings and US partner Steel Dynamics, with bids progressively rising from A$27.50 to approximately A$30.00 per share.

The board consistently maintained these offers “significantly undervalued” BlueScope and its future prospects, citing execution and regulatory risks particularly around the proposed sale of North American assets. In a 2026 shareholder letter, management reiterated its view that the consortium’s final offer was too low and that the company could deliver substantially higher medium-term value if spreads and foreign exchange rates revert toward historical norms.

Outlook

The convergence of positive broker sentiment, improving operational metrics, and recent takeover validation creates a multifaceted bull case.

Goldman’s reinstatement joins a broader cluster of Buy ratings from the sell-side, with recent interim results exceeding expectations on the strength of Colorbond and coated steel performance in Australasian markets. Multiple analysts have raised price targets following these results, suggesting consensus forecasts are catching up to improving fundamentals rather than simply chasing momentum.

The productivity program under new CEO leadership offers potential for margin expansion independent of the steel cycle. For bulls, this self-help narrative combined with cyclical tailwinds from recovering global steel demand and supply discipline creates a compelling dual-driver thesis. The company’s strong balance sheet and free cash flow generation provide downside protection through continued capital returns while funding necessary investments in lower-carbon steelmaking pathways.

However, risks remain substantial.

BlueScope operates in a deeply cyclical industry with significant exposure to global construction and manufacturing demand, particularly in China and the United States. The stock’s 30% year-to-date gain means much of the good news may already be reflected in the current price, leaving shares vulnerable to any disappointment in steel spreads or macroeconomic data. Raw material cost inflation or weaker-than-expected demand could quickly undermine the positive spread environment Goldman’s thesis depends upon.

Is a Floor In?

From a technical perspective, the rejection of takeover bids near A$30 has established an implicit floor under the share price, with markets interpreting management’s refusal to engage at that level as a signal that fair value sits materially higher. Yet with no live takeover proposal currently on the table, the stock must now trade on fundamentals and execution rather than deal speculation, removing a potential support mechanism if the cycle turns.

Analyst consensus has shifted noticeably more positive, but this also narrows the scope for further positive surprises. As more brokers upgrade ratings and raise targets toward the A$35-38 range, the gap between market expectations and reality compresses, potentially setting up disappointment if delivery falters or external conditions deteriorate.