Comp Analysis: U.S. Steel, AKS Ceding Ground to Other Steelmakers



Comp analysis

One of the key features of steel companies’ 1Q16 earnings has been the divergence in revenue growth. While Nucor (NUE) and Steel Dynamics posted better-than-expected revenues in 1Q16, ArcelorMittal (MT) and U.S. Steel Corporation (X) missed analysts’ revenue estimates.

We should note that commodity (USCI) companies’ revenues are functions of shipments and average selling prices. Steel companies’ shipments generally depend on end-user demand as well as on import penetration. However, 1Q16 steel shipments showed divergent product strategies between different steel companies.

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Shipments fell for X, AKS

AK Steel’s (AKS) 1Q16 steel shipments fell by 5% compared to the corresponding quarter last year. U.S. Steel’s 1Q16 flat-rolled steel shipments also fell by a similar amount in the quarter. However, Nucor (NUE) reported a sharp rise in its 1Q16 steel shipments.

Steel Dynamics shipped 2.1 million metric tons of steel in 1Q16, a year-over-year (or YoY) rise of 17%. ArcelorMittal’s 1Q16 steel shipments rose 8.6% compared to 4Q15 and were marginally lower compared to 1Q15.

Product strategy

AK Steel and U.S. Steel have deliberately reduced their exposures to commodity grade spot steel shipments. Spot steel prices were quite depressed in January and February, prompting these companies to cut their spot exposures.

AK Steel is positioning itself as a value-added steel producer. The company has increased its exposure to the automotive sector. AK Steel’s consolidated shipments to the automotive sector, which included both carbon steel and stainless steel, rose by 13% YoY in 1Q16.

AK Steel also managed to gain market share in the automotive market as Allegheny Technologies (ATI) closed some of its operations.

Cutting spot exposure has led to fewer shipments for AK Steel and U.S. Steel. In the next part of the series, we’ll explore how this impacted these companies in 1Q16.


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