AK Steel’s 4Q16 earnings call
AK Steel (AKS) sells ~90% of its steel to contract customers. Automotive companies account for a large chunk of its sales. As automotive companies roll out some of their steel supply contracts on a yearly basis, annual contracts for 2017 could have come up for negotiation in 4Q16. It’s important to note that ArcelorMittal (MT) is the leading global steel supplier to the automotive sector. U.S. Steel Corporation (X) and Nucor (NUE) also supply steel to the automotive sector.
Markets are waiting for updates from AK Steel on its negotiations with automotive customers, which should be addressed during its 4Q16 earnings call. The macro environment was quite mixed in 4Q16. While steel prices were subdued in October and early November, we saw a significant recovery start in mid-November. Contract pricing is crucial for AK Steel, as it will determine the company’s fiscal 2017 profitability.
Markets are also watching for an update on coking coal contracts. AK Steel mainly produces steel in blast furnaces and uses coking coal as a raw material. Spot seaborne coking coal prices were on fire last year.
During its 3Q16 earnings call, AK Steel tried to allay some of the fears related to higher coking coal prices. Chief financial officer James Vasquez said that the company started negotiations early for its coking coal contracts. He also added that higher coking coal prices are “not a major concern at this point.” In the next article, we’ll look at analysts’ estimates for Steel Dynamics’ (STLD) 4Q16 earnings.