REVISED: AK Steel Strategy Leads to Stronger Balance Sheet

Shipments were down in all product categories in fourth quarter. Total shipment for the quarter was 1,412,200 tons compared to 1,655,800 tons in Q4 2015. Value added shipments accounted for 85.2 percent of the total, while non value-added products totaled 14.8 percent.

Remarked CEO Robert Newport, “”The strategy that we introduced at the beginning of 2016 generated improved results and a stronger AK Steel,” said Roger K. Newport, AK Steel’s Chief Executive Officer. Mr. Newport continued, “Our work to optimize our footprint, relentlessly focus on costs, and reduce exposure to commodity spot markets generated improved margins. By successfully completing several capital market transactions, we were able to significantly strengthen our balance sheet. These actions position us well for the future.”

Newport commented on the trade cases filed by AK steel during the past year:

“During 2016, we continued our fight to ensure fair trade in the steel industry in the United States. I will not make excuses nor apologize for the filing of our trade cases. We must have a level-playing field, and our trade laws must be enforced. We recognized that achieving fair trade is an enormous task for any administration. And we appreciate the hard work of the Department of Commerce, and the International Trade Commission on the trade cases. In 2017, we will work with the new administration including the Department of Commerce, and U.S trade representative, in task with ensuring free and fair trade.”

AK Steel was disappointed by the negative determination in the grain oriented electrical steel case and noted that the only other U.S. producer of electrical steel was forced to shut down operations as a result of pressure from high import levels.

“We believe the electrical steel situation is an issue of national security. It needs to be addressed to ensure that the United States does not eventually become solely dependent on obtaining electrical transformers and/or the steel components from China or other foreign countries for our critical electrical infrastructure.

Newport also expressed concern about circumvention of steel products from China through Vietnam and said AK Steel intends to work with the new administration to find solutions for imports from alternative foreign countries filling the voids left by successful trade cases.

The company introduced NanoSteel NXG 1200, a new third generation advanced high strength steel in 2016. Two new next generation AHSS products will be launched during first quarter utilizing new hot-dip galvanizing equipment at Dearborn Works.

AK Steel is expecting a mild decline in automotive production rates in 2016 but still anticipates a strong year in the automotive market with transitions from some platforms to others. The housing market continues to grow and should support demand for stainless steel and electrical steel products, said AK Steel.

The carbon spot price continues to show high volatility said, Newport, and as a result AK Steel has reduced its exposure to that market. AK Steel announced five carbon steel prices since October 2016 driven mostly by input costs. “We believe a key driver of the price volatility and the recent volatility in raw material prices, including iron ore, coil, scrap, and alloys is being impacted by the global overcapacity issue in China,” said Newport.

Newport said the company has walked away from some international deals for electrical steels where poor pricing did not make sense for them. China has been “driving the bus” for electrical steel and Japan and Korea have followed its lead, driving pricing to a point where it not sustainable in the spot market. “And we’re not going to participate where it doesn’t make sense for us to do that. We’ll cut our cost commensurate and look for the opportunity to get back in as that market stabilizes, as we expected to do this year,” said Newport.

The AK Steel executives were asked to comment on new competition that is entering the market, i.e. Big River Steel, ACERO Junction and the former US Steel Canada. None were expected to have much impact on AK Steel’s market due to product mix and geographic location.

On the issue of a border tax, AK steel executives were not expecting to be impacted.

Said Newport, “So, we’re not a big player, first off outside the U.S. less than, maybe over the last couple of years, about 11 percent of our sales were outside the United States. Some of that is in the Mexico and Canada, and some of it is overseas. So, I don’t see there is a huge impact to our business. We’ll see how ours business plays out with a new administration and what they’re looking at, but ultimately we want to make stuff here in the U.S. and where we’re making the stuff in the U.S., we want to use steel products that are manufactured in the U.S.”

AK Steel’s new tubular plant in Mexico should not be affected since the company is sending steel to the plant to be converted into tubes to kept in Mexico to supply the automotive business.