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AK Steel Implements Electrode Surcharge on Stainless Products

Zacks

AK Steel Holding Corporation AKS announced that it will be implementing an electrode surcharge for all stainless product shipments effective Oct 29.

The move is in response to the recent significant hike in cost of graphite electrodes, which is used by the company to produce stainless steel grades in steelmaking operations.

According to AK Steel, the monthly electrode surcharge amount will be listed in the company's monthly surcharge publication. The amount will also be same for all stainless grades produced by the company. For November 2017, electrode surcharge amount for shipments will be $13.20 per ton.

Shares of AK Steelhave declined 7% in the last three months, underperforming the industry’s 6.5% growth.


AK Steel, during second-quarter 2017 earnings call, declared that it expects shipments in the third quarter to be relatively flat compared to the second as higher shipments of the carbon distributing and converting market are expected to be offset by lower automotive shipments. Average selling price in the third quarter is expected to be modestly lower than the second quarter. The expected decline assumes a change in the mix of shipments related to an anticipated reduction in automotive shipments and decline in raw material surcharges.

AK Steel is expected to benefit from the strengthening in the automotive market. The company is currently developing third-generation, advanced high-strength carbon steels for its automotive customers that are considerably stronger than current product offerings.

Moreover, the recently completed acquisition of Precision Partners is in sync with AK Steel's commitment to broaden its portfolio of high-value products and processes and also advances the company’s focus on the rapidly growing automotive lightweighting industry and its position in advanced high strength steels. It also reinforces collaboration with the company’s automotive market customers.

However, AK Steel faces weakness in electrical steel pricing due to global overcapacity. It is also exposed to a volatile raw material pricing environment. The company expects the global electrical steel market to remain volatile in the near future due to production overcapacity. AK Steel also remains exposed to margin pressure associated with elevated input costs.

Zacks Rank & Stocks to Consider

AK Steel currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Sociedad Quimica y Minera de Chile S.A. SQM, The Chemours Company CC and FMC Corporation FMC. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Sociedad Quimica has an expected long-term earnings growth rate of 32.5%.

Chemours has an expected long-term earnings growth rate of 15.5%.

FMC Corporation has an expected long-term earnings growth rate of 11.3%.

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