This leading steelmaker's shares are overvalued and the company lacks meaningful cost advantages within its highly capital intensive industry, according to Morningstar's senior equity analyst, Mathew Hodge.

"Like many global steelmakers, BlueScope (ASX: BSL) has struggled since the global financial crisis," Hodge says.

"Debt-fuelled acquisitions leading into the global financial crisis forced equity raisings, increasing the number of shares on issue more than fourfold.

"While improvement from the horrendous 2009-13 base was achieved, we think elevated earnings in part reflect cyclical benefits which are unlikely to be sustained."

Hodge believes the market is "too optimistic about the ability to sustain margin improvement", though he acknowledges BlueScope's financial position has improved.

Its most recent share price of $13.18 is more than double Morningstar's FVE of $5.40 for the no-moat steel manufacturer.

Hodge believes painted and coated steel and pre-engineered buildings in Asia and North America are the "great growth hope" for BlueScope, but notes that "offshore expansions from Australia are notoriously difficult".

"While a better business than commodity steelmaking, fierce competition in commodity steel lines will likely force competitors to move into higher value-added painted and coated steels," he says.

"We do not believe BlueScope has sufficiently low-cost steel production or strong enough brands to confer a moat."

Mineral Resources (ASX: MIN) is another company in the steel business, albeit further upstream. Having listed on the Australian Securities Exchange in 2006, the iron ore producer caught the best years of the Western Australian boom.

"Revenue, profit, and market capitalisation have all grown significantly, but we expect that weaker iron ore prices and lower profits are here to stay," says Morningstar senior equity analyst, Mark Taylor.

"The company's failure to disclose the split between recurring revenue from iron ore crushing and non-recurring contracting tied to the capital cycle means operating leverage and profit sustainability are highly uncertain."

He also points to its lack of clear reporting of revenue and earnings contributions from its mining services businesses as "problematic" for conducting analysis.

With a $17.90 share price as of 15 November, it is trading at a considerable premium to Morningstar's $7 FVE.

"As a relatively high-cost producer, we expect the company's iron ore supply will still be marginal and at risk of exiting the market," Taylor says.

"But we think recurrent crushing earnings, and mining diversification into lithium and other commodities, justifies a higher multiple."

One of the world's largest miners, Rio Tinto (ASX: RIO), has ridden the commodity supercycle since the early 1990s.

"As a commodity producer, Rio Tinto is a price-taker, not a price-maker," Hodge says.

"The lack of pricing power is aggravated by the volatile and cyclical nature of commodity prices. We don't ascribe an economic moat to Rio Tinto, given that the bloated invested capital base doesn't permit returns in excess of the cost of capital."

In explaining Morningstar's no-moat rating, Hodge says he no longer believes the company is likely to generate returns on invested capital above its cost of capital in mid-cycle conditions.

"While the company still enjoys low operating costs relative to peers, particularly in iron ore, Rio Tinto lacks a sufficient cost advantage to sustain excess returns and to justify an economic moat," he says.

Spun out of one of Australia's largest companies, BHP (ASX: BHP) in 2015, South32 (ASX: S32) is a mid-tier diversified mining company.

While Hodge notes the company has diversified through exposure to various commodities including alumina, aluminium, manganese, coal, nickel and silver, it remains almost exclusively reliant on China's fixed-asset boom, "which we think is finished".

"This is a material headwind for future earnings. The generally bottom half of the cost curve operating cost positions and robust balance sheet are respectable," Hodge says.

"However, we think most of South32's commodity end markets are likely to suffer from weak demand and plentiful supply."

With a share price of $3.27 as of 14 November, versus a Morningstar FVE of $1.85, he believes it is significantly overvalued--"near-term cash flows look attractive, but the current level is unlikely to be sustained".

"In the longer term, we think continued support of elevated levels of fixed-asset investment in China through increasing debt is unsustainable and will reduce demand growth," Hodge says.

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Glenn Freeman is a senior editor at Morningstar.

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