As noted previously, AK Steel (AKS) stock is more volatile than the broader steel space. In this article, we’ll look at some of AK Steel’s challenges.
Stagnant auto sales
US auto sales have stagnated since peaking in 2016, and auto build rates are forecast to dip this year. As the automotive sector is AK Steel’s biggest end market, slowing demand in the sector could be a major challenge for AK Steel.
Competition is also growing in the automotive steel space, with companies such as Nucor (NUE) aggressively targeting the sector. U.S. Steel Corporation (X) also supplies the automotive sector. Increased competition and auto companies’ focus on cost cuts amid lower sales seem to have impacted automotive steel pricing. Although AK Steel’s average steel selling prices have disappointed markets over the last year, the company foresees higher prices and wider margins this year.
Competition heating up
In the medium-to-long term, AK Steel’s competition could intensify as rivals invest in new plants producing value-add products. Furthermore, US-international steel price spreads could normalize somewhat as more countries get Section 232 exemptions and US domestic supply ramps up. AK Steel’s financial leverage is also quite high—it had a net-debt-to-EBITDA multiple of ~3.5x as of December 31. Next, we’ll discuss a few more of AK Steel’s drivers and its valuation.