Will AK Steel Be Able to Maintain Its EBITDA Going Forward?


Dec. 10 2015, Updated 4:05 p.m. ET


As we’ve already seen, AK Steel (AKS) churned out a surprise profit in 3Q15. Another encouraging development in the company’s 3Q15 financial performance was a strong EBITDA (earnings before interest, taxes, depreciation, and amortization) of $120 million. This is the highest quarterly EBITDA that AK Steel has generated in more than six years. The performance comes on the back of extremely challenging steel market conditions.

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EBITDA per ton

AK Steel reported EBITDA per ton of $64 in 3Q15, as you can see in the above graph. Although this is lower by $5 per ton compared to the corresponding quarter last year, EBITDA per ton has risen sharply compared to 2Q15. ArcelorMittal (MT) had EBITDA per ton of $64 in 3Q15. United States Steel (X) delivered a per-ton EBITDA of only $22 in 3Q15.

Together, United States Steel and TimkenSteel (TMST) form ~5.2% of the SPDR S&P Metals and Mining ETF (XME). XME has invested almost half of its holdings in US-based steel companies.

Lower costs

While AK Steel’s average steel selling prices fell 2% in 3Q15 compared to the previous quarter, it still managed to deliver a higher per-ton EBITDA. AK Steel attributed the higher EBITDA to the company’s aggressive cost controls.

AK Steel expects to realize $60 million in savings from its cost reduction efforts in fiscal 2015. The company believes that these cost savings are sustainable and the company could be looking to cut its operating costs even more next year.

Please note that these cost reductions are apart from the savings accrued from falling raw material costs. The prices of steelmaking raw materials have corrected steeply, which sooner or later could start reflecting on most steel companies’ cost structures. However, not all steel companies would benefit from falling raw material prices, as we’ll see in the next part of this series.


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