AK Steel posted bigger loss in the first quarter of 2015, reported on Apr 28, hurt by a sizable impairment charge. High levels of imports hurt selling prices in the quarter. Adjusted loss was wider than the Zacks Consensus Estimate. Sales surged year over year on higher shipments, but missed expectations. AK Steel plans to announce its detailed guidance for the second quarter this month.
AK Steel should benefit from strength in the automotive market and higher shipment of steel products to automakers in 2015, supported by increased automotive builds. The company gets more than half of its revenues from this market which continues to show strong momentum.
Automakers are witnessing higher production and sales, which is driving the shipments of AK Steel's stainless steel products. Solid demand for the company's carbon and stainless steel products from its automotive customers is expected to continue this year. Automotive builds have been projected to rise 2%-3% year over year in 2015.
Moreover, the acquisition of the Severstal Dearborn plant is expected to boost AK Steel's future earnings and improve its credit profile and liquidity. The acquisition has provided the company an access to highly modernized and upgraded steelmaking equipment and facilities. With the acquisition, AK Steel expects its annual shipments to exceed 7.5 million tons. The company envisions potential costs synergies of around $50 million from the acquisition in 2015, with roughly $10 million achieved in the first quarter.
AK Steel should also benefit from its strategic investments to procure about half of its iron ore and coal requirements internally. Moreover, the company expects to gain considerably from lower steelmaking input costs in 2015.
However, AK Steel remains exposed to pricing pressure and increased steel imports. The U.S. market is seeing a flood of imports of steel products. This, in addition to the oversupply, is pressurizing prices and prospects of steel producers. The estimated market share for finished steel imports was as high as 34% of the market in the first quarter.
Surging volumes of unfairly traded imports into the U.S are hurting selling prices. Higher imports resulted in a decline in carbon steel spot market selling prices in the first quarter, leading to a 9% year over year fall in AK Steel's average selling prices.
Source: Nasdaq
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