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Steel Companies Tone Down Expectations after Steel Price Rout

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Dec. 4 2020, Updated 10:52 a.m. ET

Steel companies

In the previous article, we looked at steel companies’ third-quarter earnings and noted that steel companies posted record or near record earnings in the quarter. In this article, we’ll look at steel companies’ fourth-quarter guidance.

U.S. Steel (X) lowered its 2018 EBITDA guidance due to the recent correction in spot steel prices. The company expects to post adjusted EBITDA of $575 million in the fourth quarter, which would imply a 2018 EBITDA of $1.8 billion. During the second-quarter earnings call, U.S. Steel said that it expects its 2018 EBITDA to between $1.85 billion and $1.90 billion.

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AK Steel

AK Steel (AKS) expects a sequential fall of 2%–3% in its fourth-quarter average selling prices due to fewer automotive shipments. We should remember that automotive shipments are typically value-added products and thereby carry a higher average selling price as compared to AK Steel’s spot commodity grade shipments. The company also expects its fourth-quarter adjusted EBITDA margin to contract by 150 basis points compared to the third quarter. Meanwhile, Cleveland-Cliffs (CLF) maintained its volumes and realized price guidance during its third-quarter earnings release. Nucor (NUE) and Steel Dynamics (STLD) typically provide their quantitative earnings guidance 15 days before the quarter ends.

The fall in US steel prices is expected to negatively impact steel companies’ fourth-quarter earnings. However, we could see a slight uptick in the first quarter of 2018 once annual supply contracts roll over. This is based on the assumption that spot pricing doesn’t deteriorate from these levels.

As steel companies’ earnings have surged, so have their cash flows. In the next article, we’ll compare steel companies’ third-quarter cash flows.

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