Imports Cause AK Steel Significant “Injury and Harm”

“If injury and harm are key conditions for bringing and winning trade cases, let me be clear, AK Steel was injured and harmed significantly in the first quarter of 2015.”

AK Steel reported revenue of $1.75 billion on 1.75 million tons of shipments for a net loss of $306.3 million. Average selling price for Q1 was $999/ton, up 1 percent from Q4. Net loss included a $256 million non-cash impairment charge related to Magnetation LLC investment.

“The fact that we were able to perform at the level we did in first quarter 2015 in the face of a tsunami of imported carbon flat rolled products is a tribute to the hard work of our employees and the flexibility of our operations and supply chain partners.”

“Even for a company such as AK Steel with a high level contract business and value added sales as well as fewer accounts to sell into the spot market the impact of what we believe are unfairly treated import remains a very big deal.

“Imports foreign offerings that we believe are being subsidize by foreign governments and dumped in America are at their highest level in the past quarter century. The estimated market share for finished steel imports was an incredible 34% for the first quarter of 2015.”

“Since the decade began, finished imports have generally held between about 22%, 24% of the market. However, by late 2013 imports began to rise with 2014 imports claiming above 28% of the market and now imports are taking more than a third of the market, the largest offshore suppliers, or perhaps I should say offenders, for the first quarter of 2016 include South Korea, Turkey and China, although there were many others on the list.”

Wainscott referred to imports as a “tidal wave” that have caused a substantial decline of more than 30 percent in spot market prices in a six month period. The steel industry needs “fair trade, not free trade” he said, and noted AK Steel is working closely with Ohio Senators Brown and Portman to make it easier and faster to bring trade cases.

“The steel business in the United States is paying a severe price for the U.S. economy being stronger than that of the rest of the world,” said Wainscott. “Arguable we are a victim of our nation’s own economic recovery. That fact coupled with the strengthening U.S. dollar has made the United States a highly attractive destination for finished steel imports. We understand that the domestic steel industry continues to gather and to analyze the necessary data to support the filing of cases to address on fair trade. We support, strongly support the filing of those cases and we believe that the industry is growing increasingly closer to their filing. We hope the petitions to initiate the trade cases can be filed before the industry suffers much more damage.”

When asked about the recent increase in steel prices by competitor ArcelorMittal, Wainscott replied, “We have not yet caught up with competitor issuing a price announcement. Obviously we look at our own order book, our own intake rates, our own product mix, and evaluate for ourselves the appropriate timing of a price increase, which are doing.”

Magnetation was a major focus by analysts during the earnings call. AK steel has a 49.9 percent equity interest in iron-ore pellet venture Magnetation which has been hit hard by a significant decline in global iron ore pellet pricing. The decline has resulted in negative cash flow for Magnetation, an increased debt load and inability to raise cash. The challenges at could result in a temporary or permanent disruption of pellets supplied to AK Steel. AK Steel expects to continue to receive pellets in the short term but, if necessary, could replace supply from new or third party suppliers and/or purchase more slabs, which could have an impact on costs but will not affect production. AK Steel has fully impaired the value of their investment in Magnetation and has no plans to provide it any securities or cash.

Market share continues to increase in the automotive market with AK Steel shipping the most tons to the auto market since 2005, in part due to the acquisition of Dearborn.

AK Steel is pleased by China’s decision to terminate antidumping and antisubsidy measures on imports of grain oriented electrical steel from U.S. producers. NAFTA GOES shipments were up 4 percent from Q4 and China customers have been placing orders.