In the previous part of this series, we have seen that AK Steel (AKS) expects its raw materials costs to fall in the coming months. The company is also considering sourcing iron ore pellets from third parties, as Magnetation, its iron ore joint venture, is facing financial difficulties.
2Q15 earnings of steel companies including U.S. Steel (X) and Nucor (NUE) have been negatively hit because of lower steel prices. Global steel prices have fallen due to a massive overcapacity, especially in China (FXI).
Steel companies hike prices
AK Steel hiked steel prices by $20 per ton in April and implemented a similar hike again in June. Several other steel companies have also hiked their base selling prices over the last couple of months. However, any further increase in steel prices might be difficult for steel companies unless steel imports are stemmed. After all, the very reason why steel imports into the US (VTI) have surged over the last year is because of the price differential between the US and global steel prices. You can see the trend in US steel imports in the previous chart.
However, a new trade bill has made it easier for steel companies to file trade cases against unfair imports. Steel companies have filed an anti-dumping case against imports of cold rolled steel products. In its 2Q15 earnings conference call, AK Steel highlighted that a trade case against the import of hot rolled sheets is also in the cards.
If an anti-dumping duty were to be imposed in the above-mentioned cases, it would be a big boost to the US steel industry. In the next part, we’ll explore how AK Steel’s balance sheet looks after its 2Q15 earnings.