AK Steel’s 2Q16 earnings call
As discussed in the previous part, AK Steel (AKS) has deliberately cut its spot sales while increasing its automotive exposure. By reducing its spot exposure and increasing shipments to the automotive markets, AK Steel has achieved the following three objectives:
- Contract sales now account for almost 90% of its total shipments.
- Automotive shipments accounted for 63% of AK Steel’s 1Q16 steel shipments.
- The company’s exposure to low-priced, hot-rolled coils fell during 1Q16.
However, lower spot sales have also negatively impacted AK Steel’s shipments. We should also note that AK Steel idled its Ashland Works facility in 2015 in response to falling spot steel prices, but spot steel prices have strengthened since we last heard from AK Steel’s management at the end of April.
Meanwhile, during its 1Q16 earnings conference call, AK Steel did not provide any timeline for the Ashland plant restart. According to AK Steel, the restart of the Ashland Works facility depends on the global demand-supply scenario as well as on profit margins in its US steelmaking operations.
Markets expect AK Steel to provide more updates on a possible restart of its Ashland facility, as well as on the company’s strategy regarding its spot exposure during the company’s 2Q16 earnings call. We’ve seen a strengthening of spot steel prices here in the US (IVV), and minimills like Steel Dynamics (STLD) and Nucor (NUE) are making merry selling more profitable tons. AK Steel has been giving up market share to its competitors in the past few quarters because the company has been cutting its spot sales.
Impact on markets
That said, restarting the Ashland Works facility might have an impact on US steel prices. Supply curtailments by AK Steel and U.S. Steel (X) have helped contain steel supply in the US, leading to higher lead times. Lead times could drizzle away if idled steel capacity is brought back online. Although steel buyers would want that, steel producers might refrain from following through.
In the next and final part of this series, we’ll see how analysts are rating AK Steel ahead of its 2Q16 earnings.