AK Steel’s maintenance costs
Previously, we saw why raw material prices could decrease for AK Steel (AKS). Maintenance costs are another important cost component for steel companies. Earlier, we saw that one of the reasons why AK Steel’s share prices fell after its third quarter results was the maintenance activity in Ashland works.
Ashland maintenance was planned for 2015
The outage at the Ashland plant was planned for 2015. The maintenance started earlier to address an operational issue at the plant. This means that that the maintenance expenses for 2015 could be lower compared to 2014.
How Dearborn fits into AK Steel’s strategy
Dearborn is an integrated steel plant. As a result, it fits into AK Steel’s (AKS) overall strategy of moving towards raw material sufficiency. The deal will strengthen AK Steel’s position as a premier steel company in North America. It will enhance its market share of the automotive business.
Dearborn produces steel through the blast furnace route. The facility was rebuilt in 2007, so it’s new. A new plant has lower maintenance issues. This helps reduce the maintenance expenses.
Dearborn’s financial implication
The acquisition is expected to add $2 billion to AK Steel’s revenues. The above chart shows the pro forma contribution of this deal on AK Steel, for the year ending March 31, 2014. The company expects that the deal will add to the earnings per share (or EPS). This should benefit AK Steel investors.
After looking at the various opportunities for AK Steel, we’ll discuss the key risks that it’s facing.
Investors can also mitigate the risk associated with holding individual stocks by choosing exchange-traded funds (or ETFs) for their portfolios.
The SPDR S&P Metals and Mining ETF (XME) is an example. It can give you diversified exposure to the metals industry. Examples of other companies in the steel industry include U.S. Steel (X), ArcelorMittal (MT), and Nucor (NUE).