AK Steel moving ahead, with or without Section 232, ceo says

The outlook for US steel prices has been clouded by the growing uncertainty surrounding the Trump administration’s Section 232 investigation into whether imports pose a national security threat to the USA, AK Steel executives said this week.

The West Chester, Ohio-based steelmaker has announced two price increases worth a combined $55 per ton ($2.75 per hundredweight) since the Section 232 probe was launched, AK ceo Roger K Newport said during a conference call with analysts on Tuesday July 25.

However, those increases stemmed not from the Section 232 investigation but from higher costs for raw materials such as iron ore, scrap and coking coal, he said.

And while steel prices are projected to rise in the second half of the year, it is not a slam dunk, Newport said.

“Uncertainty regarding the pending Section 232 investigation makes predicting future market prices more difficult than normal,” he said.

Newport’s comments echoed those of John Ferriola, the top executive of Charlotte, North Caroline-based Nucor Corp, who also lowered Section 232 expectations during his company’s second-quarter earnings call.

The Trump administration launched its Section 232 probe in April, failed to meet a self-imposed June 30 deadline and has subsequently provided no timeline for an investigation it said was in its “final stages of review” two weeks ago.

Newport confirmed that he had met with administration officials last week in Washington. He said the company urged President Donald Trump to adopt a “broadly applied” Section 232 remedy that “doesn’t create loopholes out there” for other nations “to jump through to bring steel into our country”.

A broad-based solution is necessary because traditional trade cases – including ones won by the domestic industry – have failed to stem a growing tide of imports, Newport said.

“Pricing has remained more volatile than we expected. […] This volatility reflects the challenges we continue to face in a marketplace where imports continue to flood into our country.”

Imports hit a 29-month high in June and are on pace this month to meet or exceed last month’s volumes, according to US Commerce Department figures. The situation is particularly tough when it comes to electrical steels, with material from China, Japan and South Korea arriving at double the rate it did last year, Newport noted.

Imports and price volatility, combined with uncertainty around the Section 232 investigation, is part of the reason why AK has no immediate plans to restart its blast furnace in Ashland, Kentucky, Newport said. The furnace, which has been hot-idled since 2015, has capacity of 2.5 million tpy. AK will not restart it until the company is able to find a profitable home for those tons.

But AK is not counting on the Trump administration to ride to its rescue, company executives noted.

The company instead is focusing on things it can control, such as a grant from the Department of Energy to develop electrical steels that might expand the driving range of electric vehicles, company president and chief operating officer Kirk W Reich said. “We’re not sitting idly by waiting for 232, hoping it comes. We are doing plenty of other things that will bear fruit kind of regardless of what happens there.”

Also on the automotive front, AK is bracing itself for an expected 2-3% decline in light vehicle builds in 2017 compared with last year, Newport said. The dip in the company’s biggest market is no immediate cause for alarm, because 2017, despite the anticipated decline, will still be a solid year for car sales, he said.

Company executives acknowledged that automakers took more time than expected to come back from their summer shutdowns. The extended shutdowns came because some automakers needed to cut production amid bloated dealer inventories, they said.

AK is protected because the automotive pain is concentrated in small- and mid-sized vehicles, Newport said. The company’s steel, by contrast, is primarily used on larger pick-up trucks, sport utility vehicles and crossovers, where sales have remained firm.

And the company expects to outperform overall auto trends, an indication that it is taking market share from its competitors, AK executives said. And should automotive volumes slip, AK will be able to make up for the decline with increased shipments to distributors and to the spot market, they said.

The company will not hesitate to produce whichever products bring the most profits, Newport said. “We want to be selling products that are making reasonable margins. […] That could be hot rolled, cold rolled or coated.”

All told, AK’s third-quarter shipments are expected to be on par with those from the second quarter as the company makes up for lower automotive demand with increased shipments to converters and other carbon spot-market customers, cfo Jaime Vasquez said.

Overall selling prices are also expected to be marginally lower in the third quarter compared with the second due to lower raw material surcharges and the expected decline in automotive sales, he said.