Steel Mills

AK Steel Has Best Q3 Since 2008

October 25, 2016

AK Steel’s efforts to focus on higher value products, cut costs and reduce exposure to commodity products has resulted in a net income of $50.9 million and the company’s best third quarter since 2008. Adjusted EBITDA margins improved to 10.8 percent from 7 percent a year ago.

“De-emphasizing commodity products and introducing new products, such as our recently announced NEXMET™ line of next-generation advanced high strength steels, are examples of our ongoing work to differentiate ourselves in the market today and for the future, and to drive long-term shareholder value,” said CEO Roger Newport.

Net sales decreased 15 percent year over year to $1.45 billion and shipments decreased 24 percent to 1,425,900 tons due to the intentional reduction in volume of commodity products.

AK Steel expects fourth quarter shipments to be relatively flat due to seasonal slowdown in automotive shipments offset by higher sales to the distributor/converter market. Average selling prices are expected to be moderately lower.

Maintenance outage costs of $25 million will be recorded in Q4 resulting from maintenance at the Dearborn and Butler melt shops and down time for installation of new equipment at Dearborn to expand AHSS capabilities.

AK Steel said in the earnings call that there are no plans at this time to expand production at its coal division. “Probably not this year,” said Newport, “it depends on where met coal prices go and long-term stability in that market.” AK Steel has the capacity and flexibility to expand with modest investment to open a new mine and buy new equipment. The target was to mine a million tons of coal per year and AK Steel is currently at about a third of that target. The coal assets will “eventually advantage us, whether next year or in the future” said Newport.

AK Steel has reduced its exposure to the spot market to 90 percent contract and 10 percent spot. About 60 percent of its contracts are auto. The contracts are staggered and helps reduce volatility, said Newport. Contracts generally move in the same direction as spot pricing but less dramatically.

AK Steel is excited about the new developments it is introducing in advanced high strength steels. Eventually the products being introduced today (NEXMET 440, 1000 and 1200) will replace products that have been in the market for years, but right now it a way for AK Steel to sell differentiated products, be first in the market and still be able to participate in the market they have, said Newport. “This is our foray into how we fight the intrusion of aluminum and other products.” The products perform the lightweighting that aluminum is known for but for a much better cost and without the need for OEMs to invest capital to change their systems.

Newport said AK Steel will continue to fight against unfair trade such as the circumvention of Chinese steel through Vietnam to avoid duties. “Our goal remains the same in all of our trade actions. We expect a level playing field, and we expect the United States Government to enforce our trade laws. We will continue to do everything in our power to ensure that this happens in the future.”