Steel Mills

Cost Savings Lead to Profitability for AK Steel

Written by Sandy Williams

“Cost is the enemy of profitability,” said AK Steel CEO James Wainscott in the company’s third quarter earnings call. AK Steel proved it can cut costs, trimming $58 million at Dearborn Works and $60 million for the company as a whole for 2015, and delivering a positive net income of $6.7 million in third quarter.

Net sales were $1.71 billion on shipments of 1,871,200 tons, up from net sales of $1.69 billion on shipments of 1,811,700 tons for the second quarter of 2015. Average selling price of $912 per ton was 2 percent lower than Q2.

Adjusted EBITDA rose to $120 million or $64 per ton, more than doubled from second quarter EBITDA of $47.6 million or $26 per ton in second quarter.

AK Steel issued WARN notices at Ashland Works earlier this month and plans in December to idle the steelmaking operations until market conditions improve. Downstream operations will continue as usual.

“This action was taken because beginning in mid-December, we intend to temporarily idle Ashland’s steelmaking operations,” said Wainscott. “The duration of that idle will be based upon market conditions and while we cannot say how long it will last it could extend for more than six months. This action has been brought about by the incredibly high level of what we believe are unfairly traded imported steel and its impact on pricing, incredibly low pricing.”

Wainscott noted that carbon steel spot pricing was at $650 per ton when the company acquired Dearborn Works in Sept. 2014. Since that time, carbon spot pricing has declined almost 40 percent to $400 per ton and is now near 15 year lows.

In AK Steel’s opinion, resolution of the three trade cases on coated steel, hot rolled and cold rolled is taking too long. Imports have continued despite the filing because they “have no teeth yet” since duties have not been applied. The company expects a significant effect on supply on pricing once the cases have been determined and duties are imposed.

AK Steel reports the automotive remains strong for its carbon and stainless steel products, setting an all-time record in terms of shipments to automotive customers. The pace of automotive build in the NAFTA market boosted shipment of auto chrome for the company’s second best quarterly shipment level in AK Steel’s history. Electrical steel shipments improved by 3 percent from second to third quarter and were 10 percent higher year-over-year.

AK Steel says it has worked hard to reduce costs to remain healthy in face of unfair trade and is now facing the challenge of contract customers who are want price reductions on the steel they buy.

“Bottom line is simply this, we cannot give what we do not have. At AK Steel we’re looking to protect and to grow our margins, not shrink them into oblivion. And if we don’t charge a selling price that allows our company to generate a profit, reinvest in the business including advanced high-strength steels and be self-sustaining, well, then shame on us. We give our customers and our shareholders a great disservice at that point.”

In a separate press release today, AK Steel announced the retirement of CEO and President James Wainscott and his replacement by Roger Newport as CEO and Kirk Reich as President and COO.

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