Must-know: Understanding the major markets for AK Steel

Mohit Oberoi, CFA - Author

Oct. 31 2019, Updated 1:09 p.m. ET

AK Steel’s major markets 

AK Steel (AKS) gets most of its revenues from the U.S. For the past three years, more than 85% of its sales have come from the U.S. This makes AK Steel more exposed to the domestic market’s dynamics than global factors.

More importantly, its share of revenues from foreign countries has come down steadily. This is due to excess production capacities in global markets, which limits AK Steel’s export potential.

Key end markets for AK Steel

The steel produced by the steel companies is consumed by a host of end industries. On a macro level, the construction industry is the biggest consumer, consuming almost 40% of steel. The automotive segment is the second biggest, accounting for almost a quarter of steel consumption in the U.S.

The chart above shows the revenue breakup for AK Steel. As you can see, AK Steel gets more than half of its revenues from the automotive companies. Infrastructure and manufacturing account for 20% of the sales, while the remaining revenues come from distributors and converters.

These distributors and converters act as links between the steel companies and the steel consumers. They provide the steel consumers with custom shapes as per their requirements.

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Another advantage of these companies is that they can offer smaller lot sizes to the consumers, which may not always be possible for the big steel consumers. This is a very important channel for steel companies like AK Steel, ArcelorMittal (MT), United States Steel Corporation (X), and Steel Dynamics (STLD).

An alternate way to access the metals industry is through the SPDR S&P Metals and Mining ETF (XME). We’ve seen that the automotive companies are the biggest customers for AK Steel. We’ll discuss the automotive sector’s dynamics in our next part.


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