AK Steel Profits Dwindle in Third Quarter

Flat rolled steel shipments totaled 1,303,000 tons compared to 1,391,000 tons in the previous quarter. Flat rolled average selling price was $1,067 per ton.

“Our third-quarter results were essentially in line with our expectations despite a challenging environment. We continued to make solid progress in our strategy to focus on higher-value business during the quarter,” said CEO Roger Newport.

AK Steel finished its planned maintenance upgrade at Dearborn and is on track for the final closing of Ashland Works. The Ashland idling is expected to provide $40 million in annual savings.

The new stamping facility at Precision Partners is on schedule and on budget. “This investment puts us into fairly exclusive territory with the capability to produce single-piece hot-stamped door rings and large subassemblies,” noted President and COO Kirk Reich.

Demand remains strong in AK Steel’s core market, automotive, and the company anticipates increasing its market share in 2020. The GM strike had a modest impact on the third quarter, but will be reflected more in the fourth quarter. Despite slowing vehicle sales, AK Steel expects to ship more carbon steel into the market next year including ultra-high strength steel such as NEXMET Third Generation AHSS. More than 75 percent of AK’s automotive business serves high-selling truck, SUV and cross-over platforms.

A licensing agreement, resulting from patent infringement litigation with ArcelorMittal, will give AK Steel full rights as sole licensee to manufacture and sell its ULTRALUME PHS product for hot stamping in the U.S, Canada and Mexico. As a result, AK Steel expects sales of the product to significantly expand.

Scrap prices and service center inventories are “bouncing back,” said AK Steel executives.

“The carbon service center inventories are around two months, and that’s actually probably the lowest point of the year,” said Newport. “Both refilling of the General Motor supply chain and the recent round of steel price increases that were announced should also further support improved market conditions over the course of the coming weeks and months.”

Trade remains at the forefront of challenges facing the steel industry and AK Steel. Circumvention of tariffs through Mexico on electrical steels has been a problem, with some customers moving their business to foreign steel. Electrical steel demand is strong in the U.S. with some transformer producers reporting record-breaking years, said Reich. Closing the loopholes that allow circumvention and passing the USMCA are vital to securing a fair playing field, said Newport.

AK Steel cut its annual guidance due to a sharper-than-expected price decline in HRC prices to an average of $510 per ton in October. The falling prices caused service centers to trim orders, resulting in lower shipments, which will be compounded by impacts from the GM strike in the fourth quarter.

Net income for the full year has been revised to a range of $26 million to $41 million from the previous quarter full-year guidance of $41 million to $61 million. Flat rolled shipments are expected to be in the range of 5.3-5.4 million tons.