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AK Steel unable to aid struggling automakers

Keywords: Tags  steel, automotive market, AK Steel, James L. Wainscott, Roger K. Newport, steel shortage, coated steel, cold-rolled steel hot-rolled steel

CHICAGO — AK Steel Corp. is booked nearly to capacity on coated and cold-rolled steel products and therefore has limited capacity to help automakers facing shutdowns due to steel shortages, the company’s top executive said.

The West Chester, Ohio-based steelmaker is "increasingly being approached" by automotive customers "who are short on supply and facing potential outages," AK Steel chairman, president and chief executive officer James L. Wainscott said during a conference call with analysts April 22.

"We are happy to help, but we are not really in the firefighting business," Wainscott said, noting that the company also had "few tons" to offer.

"Our interest is really longer term and strategic in nature. We want to be the supplier of choice to take over (that business) in the future," he said.

U.S. automakers have not had to stop production due to supply chain problems at domestic steel mills, including a force majeure at Pittsburgh-based U.S. Steel Corp.’s Great Lakes Works in Ecorse, Mich. (, April 21). But Wainscott’s comments—echoed by market sources—suggest that some companies are in the hunt for replacement tons from alternative suppliers.

AK Steel lacks spot tons in part because it continues—along with other integrated steel producers in the Midwest—to grapple with iron ore shortages due to ice on the Great Lakes, Wainscott said. In response, the company has temporarily reduced the operating rates of its two blast furnaces, increased production at its Butler (Pa.) Works electric-arc furnace and also is buying slabs from third parties, he said.

AK Steel makes steel from blast furnaces at its Ashland (Ky.) Works and Middletown (Ohio) Works, according to the company’s website. The blast furnaces are currently running at approximately 80 to 85 percent capacity, Wainscott said.

AK Steel is "not shy" about sourcing slabs from third parties if the price is right and the material matches the company’s order books, Wainscott said. "It’s something we’re going after and have a number of dialogues going on as we speak," he said.

Supply disruptions on the Great Lakes could last until at least the third quarter if not longer, Wainscott said. "It could take most of the year, frankly, for the deliveries to catch up," he said.

The Great Lakes experienced the second-highest ice cover on record this winter, causing the shipping season to start late and end early, Wainscott said. "Anyone who receives raw materials from the Great Lake is experiencing issues. That includes us and, I would guess, most everyone else," he said.

The late 2014 estimate referred to ore inventories returning to normal levels and not current shipments being delayed that long, chief financial officer Roger K. Newport stressed.

Despite the current tight market, AK Steel has only limited spot availability to take advantage of higher prices, Wainscott said. Roughly 80 percent of the company’s business was linked to contracts in the first quarter and 20 percent spot, a ratio that should improve to 75 percent to 25 percent in the second quarter, he said.

Most of AK Steel’s spot availability is for hot-rolled coil, "and that’s really the product we’ve been raising prices on," Wainscott said, noting that the company was still in "catch-up mode" because of past operational problems. "So there isn’t a dramatic (spot) opportunity. There is some—certainly more than in the first quarter—but not as much as we would like," he said.

AK Steel’s contracts generally do not have "reset" provisions in them, and so the company generally "ate" any increased costs in the first quarter, Wainscott said. But some contracts last only six months, and the company is "achieving higher prices" as those expire and are renewed, he said.

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