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AK Steel Bulls Run for Cover, Stock Slides

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AK Steel’s earnings call

In this part, we’ll see what AK Steel’s (AKS) management said in its 2019 outlook during the company’s third-quarter earnings call. First, the company expects higher costs for iron ore (CLF) and met coal—key steelmaking ingredients. The company has sealed its 2019 met coal supply contracts. The contracts were settled at a higher level compared to the last year.

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Upgrades

Several analysts upgraded AK Steel over the last couple of months due to expectations of higher 2019 automotive contract pricing. While the company said that it would “capture some meaningful price increases on the automotive contract renewals,” management’s tone suggested that the increases might not be as high as the markets have been anticipating.

Steel prices have fallen

Automotive companies generally use cold-rolled and coated steel products where the price rise has been substantially lower compared to the benchmark HRC (hot-rolled coil). Nucor (NUE) has a high proportion of HRC in its flat-rolled product mix.

Spot steel prices have come off their 2018 highs, which could have a negative impact as AK Steel negotiates its 2019 contract pricing. The company’s 2019 spot steel shipments could be impacted negatively if US steel prices cool off more next year. Lower spot steel prices appear to be a headwind for other steel companies like U.S. Steel Corporation (X) and Steel Dynamics (STLD).

Some steel stocks appear to offer value at these prices. Read Is the Sell-Off in US Steel Stocks Overdone? to learn more.

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