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Earnings defy recession: in their first-quarter conference calls with analysts and investors, mill executives report strong earnings, on record metals prices, despite the questionable economy.

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AK Steel

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Average Selling Price Sets Record at $1,135

A record-selling price for its steel delivered a strong start to 2008 for AK Steel, Middletown, Ohio.

The company's average price of $1,135 per ton was a 5 percent increase over the $1,078 figure in the first quarter of 2007 and the $1,079 per-ton level in the fourth quarter. Higher spot and contract steel prices, coupled with increased raw material surcharges, drove the higher price.

As a result, AK Steel reported net income of $101.1 million, a jump of 61.2 percent compared to the $62.7 million in the first three months of 2007. Net sales were up 4.1 percent to $1.79 billion.

The new average selling price record was just one of the highlights in the first quarter, President and CEO James Wainscott told shareholders and analysts during the company's first-quarter conference call.

"At $108 per ton, our operating profit ranks as its best-ever in the company. During the first quarter, we set a monthly production record for stainless slabs. And at Butler, Zanesville and Coshocton, we set records in stainless and electrical steel shipments."

The operating profit per ton of $108 was an increase of 40 percent compared to the first quarter of 2007.

Wainscott is projecting more of the same in the second quarter, anticipating another record performance. "We expect second quarter shipments to increase to approximately 1.7 million tons, up nearly 8 percent from the first quarter. We expect our second quarter average selling price to be another record, increasing $100 per ton over the first quarter."

Wainscott said the company's increased input costs for carbon scrap, iron ore and natural gas will be approximately $70 per ton. "The prices we pay for iron ore, scrap and purchased slabs are at their highest levels in history. As the least integrated of integrated steel producers, we are receiving a full frontal assault from these extraordinary cost increases."

The price of iron ore pellets has jumped nearly 90 percent this year, No. 1 scrap bundles are up to more than $550 per ton, and purchased slabs are selling for more than $800 per ton, he said.

AK has been able to pass along most of the raw material cost increases through seven carbon steel price increases totaling more than $400 per ton. Still, as existing contracts expire, AK and other steelmakers will make further adjustments.

"Upon expiration of the various agreements, we'll be truing up prices that reflect cost and the cur rent market situation. I think it's fair to say that fixed price agreements will soon be a thing of the past," Wainscott said. "Steel companies have had a lousy one-sided business model, where we accepted all of the risk on commodity inputs, including iron ore, and that will not work going forward."

AK Steel announced a planned 18-day shutdown of the blast furnace at Middletown Works, which will cost approximately $40 million. The maintenance shutdown is a week longer than the company's typical outages.

Also in the works for AK Steel is work on the No. 5 electric arc furnace at Butler Works, which could result in a 40 percent increase in melting capacity and the possibility of taking the company out of the market for purchased slabs. AK Steel also announced plans for a new coke battery at Middletown Works that will allow it to become self-sufficient in terms of company-wide coke requirements.

But for the immediate future, Wainscott said, the company expects great things. "Our second quarter has the potential to be the best in the history of the company. Frankly, I'd be disappointed if it wasn't."

Alcoa

Higher Input, Energy Costs Compress Earnings

Higher input and energy costs and a weaker dollar compressed Alcoa's earnings during the first quarter. The Pittsburgh-based aluminum producer reported net income of $303 million in the quarter, less than half the total posted in both the previous quarter and the same quarter in 2007. Alcoa reported net income of $632 million in the fourth quarter of 2007 and $662 million in the first quarter of 2007.

Revenues for first-quarter 2008 were $7.4 billion, down from the previous quarter. The total was a 6.0 percent increase when the packaging and consumer business is excluded. Alcoa sold that portion of its business during the first quarter.

"We have generated strong returns in the face of challenging economic conditions and three of our segments--primary, flat-rolled and engineered products and solutions--achieved substantial after-tax operating income growth," said Alain Belda, Alcoa chairman and CEO during his most recent conference call with analysts and investors. "Upstream margins were squeezed by higher energy costs and a weaker U.S. dollar, but the global market remains tight and prices are near historic highs, primarily driven by demand in Asia, especially China."

In first-quarter 2008, management approved a realignment of Alcoa's reportable segments to better reflect the core businesses in which Alcoa operates and how they are managed. This realignment consisted of eliminating the extruded and end-products...

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