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Sheet tags still have a little room to rise: AK

Keywords: Tags  steel prices, AK Steel, James Wainscott, unplanned outage, hot-rolled steel, steel prices, sheet prices, automotive Catherine Ngai

NEW YORK — While the U.S. steel sheet market has tightened in recent months, coupled with a number of successful rounds of price increases, there might only be enough room for another $20 to $30 per ton in hikes before it hits a potential ceiling, AK Steel Corp.’s top executive said.

"Things are tight ... and it’s bolstered pricing. We’re quoting $650 (per ton) and evaluating if another increase is warranted," James L. Wainscott, chairman, president and chief executive officer of the company, said during a second-quarter earnings call July 23 as he speculated on the price level at which imports would likely become attractive enough to U.S. buyers. "I’ll leave that to those who look at the bigger picture, but maybe another $20 to $30 per ton (higher) if I were to be a prognosticator."

AK Steel, which saw second-quarter losses widen to $40.4 million (, July 23), said that even though shipments to automakers increased, that boost was offset by lower carbon steel spot prices.

While Wainscott said the West Chester, Ohio-based company’s earnings for the three months ended June 30 represented an improvement over the previous quarter, "forward progress" was halted due to events outside of its control. This included the unplanned outage at its Middletown, Ohio, facility, which went offline June 22 following a mechanical failure (, June 24).

The company has made all the necessary repairs and the plant has been in operation for the past week or 10 days. Full ramp up to production is more than 90-percent complete, he added.

While the unplanned outage will likely add some $12 million to $15 million in costs to the steelmaker’s financial books later this year, AK Steel was unsure if the outage would affect third- or fourth-quarter earnings due to insurance procedures. The outage took some 25,000 tons offline in the second quarter and an additional 100,000 to 150,000 tons in the third quarter.

The steelmaker continued to tap into the strength of the automotive sector, noting that it experienced its best automotive shipping quarter since the third quarter of 2007. June was the best month for light vehicle sales in some eight years, it said, citing low interest rates, credit availability and somewhat better economic conditions.

"Automotive, which represented 45 percent of our 2012 revenues, grew to 50 percent to our first-half 2013 revenue," Wainscott said. "This market continues to be a source of strength for AK Steel both for our carbon automotive shipments and our auto chrome shipments as well."

AK Steel is mindful of the challenge to lightweight cars, while assessing the market and doing proper research to get into producing the third generation of advanced high-strength steels, Wainscott said, declining to specify if the company would make near-term investments in this space.

While the contract side of AK’s business moved forward, the carbon spot market remained lackluster in the quarter, particularly due to challenging conditions domestically and globally.

"Increasingly, we’re moving away from spot market business in favor of higher-margin contract business. Our mix of business in 2013 is 70-percent contract, 30-percent spot," according to Wainscott. "Longer term, our objective is to further increase contract sales while decreasing our spot market (sales) where typically the only thing that sets you away from your competition is price."

In the second quarter, hot-rolled bands fell to around $560 per ton, which is the "lowest pricing level" since the fourth quarter of 2010, he said.

However, due to several supply-side changes in the market, including the company’s own unplanned outage, AK Steel was able to announce two of its own carbon spot price hikes that eventually took hold, leading current quoting activity to some $650 per ton. Lead times have also extended, with spot market hot-rolled lead times extending into late August and those for cold-rolled and coated material into September.

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