Must-know: Key risks that AK Steel investors face

AK Steel investors’ key risks

Previously, we saw how 2015 could be a turnaround year for AK Steel. It’s expected to generate positive cash flows from operations. Profits are also expected to rise as a result of lower raw material prices. It’s important that investors monitor the risks.

Aluminum onslaught is a big risk for AK Steel

The increased use of aluminum in vehicles is a threat for AK Steel (AKS). The automotive industry accounts for ~26% of steel consumption in the U.S. For AKS, more than half of its revenues come from the automotive industry. As a result, AK Steel’s profits depend on the automotive sector. The previous chart shows the increasing aluminum intensity in vehicles. This is a key risk for AK Steel investors.

AKS is working closely with automotive companies to develop lighter varieties of steel. This should help AKS protect itself against aluminum. The Ford F-150 mini truck will hit markets soon. This is the first full aluminum body truck. Investors should closely watch the interest generated by this product. If more auto companies move to full aluminum body vehicles, AK Steel might lose a large portion of its revenues

Rising imports

This is a risk for all steel companies in the U.S. It’s the biggest risk for steel companies like ArcelorMittal (MT), U.S. Steel Corp. (X), Nucor (NUE), and Steel Dynamics (or STLD). Some of these companies are part of the SPDR S&P Metals and Mining ETF (XME).

Another potential threat for steel companies is extreme weather—like we saw last winter. Steel companies were severely impacted by the harsh weather. It led to production losses because there was a disruption in the supply chain. This year, steel companies stocked enough inventories to face a disruption.

Please visit the Market Realist Steel page to learn more about the steel industry.