Steel Mills

AK Steel Says Lower Imports and Inventories Helping Pricing and Demand

July 26, 2016

AK Steel reported net income of $17.3 million for second quarter 2016 compared to a net loss of $64.0 million a year ago.

Net sales were 1.49 billion a decrease from $1.69 billion in in Q2 2015 as a result of lower automotive contract pricing as well as a decrease in shipments. Shipments totaled 1,555,500 tons, a decline of 14 percent year-over-year. Despite lower shipments, adjusted EIBTDA more than doubled and adjusted EBITDA margin increased to 6.7 percent from 2.8 percent.

Reduced exposure to the commodity carbon steel spot market resulted in a 320,000 ton decline in shipments to the distributors and converters markets, or a 48 percent reduction from a year ago, said AK Steel. Shipments of higher value coated products, which are sold mostly to the automotive market, increased to 53 percent of the company’s total shipments in the current second quarter from 45 percent a year ago.

AK Steel CEO Roger Newport said he was pleased with the ITC preliminary determination of injury regarding stainless steel imports from China and the significant countervailing duties Commerce imposed on Chinese producers in July. Newport said AK Steel will continue to monitor imports from other countries to ensure fair trade is occurring.

“For example, we have observed a significant rise in shipments of carbon cold-rolled products from Vietnam, Turkey and Australia. These countries had minimal imports prior to the filing of the trade cases. We are not against steel imports, but rest assured, we will do everything within our control to ensure that we are competing on a fair and level playing,” said Newport.

The market in North America for grain oriented electrical steels continues to grow but the global market is facing pressure on pricing and shipments due to overcapacity and international trade cases.

AK Steel announced five spot market price increases for carbon steel products this year. Newport said reduced import levels and low inventory levels at service centers have brought stability in prices and demand for both carbon and stainless steel products in third quarter.

AK Steel expects a modest decline in shipments in Q3 due to planned manufacturing outages and summer shutdowns at some automotive customer facility. Automotive sales are expected to remain strong throughout the second half of 2016.

Said CFO Jaime Vasquez, “We also expect shipments to the distributor and converter markets to decline further as we continue to intentionally reduce exposure to the commodities spot market. Our move towards a more value added product mix in conjunction with higher selling prices in the spot market should result in an increase in our average selling price per ton of approximately $25, compared to the second quarter based on our current outlook.”

AK Steel is developing a number of new product innovations including Nano steel, an advanced AHSS alloy steel that is currently being tested that can compete with aluminum. Another next-generation AHSS product that is closer to implementation is a cold stamp product with almost double the elongation of AK’s existing products.

Newport said there are more opportunities than light weighting for AK Steel to help automotive manufacturers reach CAFE standards.

“There is also many other ways of skinning that cat, if you will. One way is more electric vehicles. We are participating in that category by our non-oriented electrical steel that we have developed and are working on for what will be high-efficiency motors for those applications,” said Newport.

During the conference call, there were several questions pertaining to the temporary idling of Ashland. AK Steel said it continues to watch market conditions for signs that a restart will be able to sustain levels of profitability. At this time the market conditions do not justify a change in their decision.