The automobile companies’ importance
We saw in the last part that the automobile companies account for more than half of AK Steel’s (AKS) sales. It supplies steel to all major auto companies in the U.S. and to auto component manufacturers. It has a diverse product line and offers flat-rolled carbon steel and stainless steel to the automobile companies.
But ArcelorMittal (MT) is the biggest steel supplier to automotive companies globally.
Growth in the automotive business
The chart above shows the growing revenue share from the automotive market. As you can see, the revenue share from the automotive segment has increased from 36% to 51% between 2010 and 2013. The revenue share from distributors and converters has gone down from 40% to 29% in this period.
It’s important to note that total shipments haven’t gone up at AK Steel. This means that the rising automotive segment share is a result of the falling revenues from the other segments. The shipments to distributors and converters has fallen over the past several years. This reflects the company’s strategy of having more value-added products in its portfolio.
We’ll discuss in the next part how this strategy benefits AK Steel.
Automobile sales have been rising
The automotive sector has been resilient, and the auto sales numbers have reached the pre-crisis levels. This is a positive sign for investors in Nucor (NUE), Steel Dynamics (STLD), and the SPDR S&P Metals and Mining ETF (XME).
The worrying point for AK Steel investors is that the automotive segment now accounts for more than half of the company’s revenues. This exposes the investors to concentration risk, as any downturn in auto sales can have a big impact on AK Steel. We’ll discuss this in greater detail going forward.