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Prices soft in some segments: steel and aluminum producers report strong results for the year to date despite third-quarter weakness in some markets, especially stainless steel.

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AK Steel

Third-Quarter Net Income Increases Four-Fold

Despite challenging business conditions, including "a rather difficult" carbon steel environment and a stagnant market for 300-series stainless steel, AK Steel Corp. reported a four-fold increase in its net income in the third quarter vs. a year earlier. The West Chester, Ohio, mill expects similar results in the fourth quarter, which should mean that full year 2007 will "even exceed our own expectations" said James L. Wainscott, chairman, president and chief executive officer, during last month's conference call with analysts and investors.

The integrated carbon and specialty steelmaker posted a net income of $108.4 million in the quarter, up from $26.0 million during third-quarter 2006 on net sales of $1.72 billion, up 10.8 percent from $1.55 billion during the year-earlier quarter. Through September, the company posted a net income of $281.0 million on net sales of $4.91 billion vs. $61.3 million on sales of $4.65 billion for the first nine months of 2006.

AK Steel generated an operating profit of $163.5 million or $102 per ton in the third quarter, marking the second consecutive quarter and the second time in its history that it achieved an operating profit exceeding $100 per ton.

Wainscott admitted that AK's largest market, automotive, is having a difficult year, with 2007 light vehicle production at its lowest level in a decade. However, he says, "With 59 days of supply on hand, U.S. light vehicle inventory levels are in reasonably good shape. With any kind of pickup in the economy, steel demand [from this sector] could be impacted in a significantly positive way."

Housing starts are likely to remain weak for a while, putting pressure on pricing and volumes in AK's ACM (appliance, construction and manufacturing) business segment, he said. On a positive note, steel imports continue to decline. "Service centers and distributors continue to be cautious buyers in the current market environment, but with service center inventories at their lowest levels in 20 months, any change in their outlook should equate to higher shipments," Wainscott said.

AK Steel has been gradually realizing the $30 per ton carbon flat-roll increase it announced in August "and we will not be shy about responding to the markets that we serve with additional price increases when and where they are warranted" he said.

Commenting on the specialty steel market, Wainscott said commodity flat-rolled stainless has been weak due to a combination of high inventory levels and declining nickel prices, "but as nickel prices have begun to stabilize recently, we've seen a fairly significant increase in customer buying activity."

Meanwhile, demand for grain-oriented electrical steel continues to be strong, especially in light of new U.S. Department of Energy standards for transformer efficiency. As a result of this and good global demand, Wainscott expects price increases averaging over 20 percent in AK's electrical steel contracts for 2008.

He noted that AK Steel's most recent electrical steel expansion project, originally scheduled for mid-2008, should be completed early. The company expects to complete work at AK's Butler Works this month and at the Zanesville Works in December.

In mid-October, AK's board approved yet another electrical steel expansion project--its fourth in four years--which will increase the capacity at Butler and Zanesville by another 9,000 tons a year at a cost of slightly more than $50 million.

The board, at the same time, authorized another project at Butler, the installation of a new, modern electric arc furnace capable of melting 1.45 million tons of stainless, electrical and carbon steel products per year, replacing two less-efficient EAFs. At a cost of about $130 million, it is expected...

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