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Can AK Steel Investors Expect Better Days Ahead?

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AK Steel investors

The automotive sector accounts for a large chunk of AK Steel’s shipments. ArcelorMittal (MT) is the largest global steel supplier to the automotive sector (IWM) (RUT-INDEX). Nucor (NUE) and U.S. Steel (X) also supply steel to automotive companies. US car sales have shown signs of moderation this year and have come off their 2016 highs. Among other factors, lower automotive sales have been weighing on AK Steel (AKS).

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Apprehensions

AK Steel’s management has tried to allay some of the fears related to the automotive slowdown. During their 1Q17 earnings call, Roger Newport, AK Steel’s CEO, said, “It is anticipated that most of the forecasted reduction in automotive build rates will take place on small and medium-sized vehicle platforms.”

Newport added, “the majority of our automotive shipments are used in the production of larger vehicles such as pickup trucks and SUVs (Sports Utility Vehicles), which continue to experience very high sales levels in the U.S. So, we would expect the predicted automotive downturn to have less of an impact on our business than it might have on others.”

Better days ahead?

Although car sales fell in August as compared to the corresponding month last year, they were better than expected. Meanwhile, we could see some uptick in demand from the Houston area as many vehicles were damaged by Hurricane Harvey. Furthermore, although US car sales have been lower than last year, they are still at comfortable levels in absolute terms.

In the next article, we’ll look at AK Steel’s 3Q17 earning estimates.

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