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Mills, service centers girding for a downturn.

Article Excerpt
By the Staff of Metal Center News

In their latest report to analysts and investors, some of the industry's leading publicly held companies see "no forward visibility on the market or economy."

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Mills

AK Steel

Eclipses 'Unreachable' $200 Per Ton Profit

AK Steel, West Chester, Ohio, reported record quarterly net income of $188.3 million for the third quarter of 2008, a 73.7 percent increase from the $108.4 million for the third quarter of 2007. Net sales jumped 25.3 percent in the third quarter to $2.16 billion.

Driving the steelmaker's improved performance was the company's average selling price of $1,462 per ton, approximately 36 percent higher than the $1,074 achieved the previous year. The operating profit of $210 per ton was the first time the company eclipsed $200 per ton, "a level once thought unreachable for an integrated steel producer," said Albert E. Ferrara Jr., AK Steel's vice president of finance and chief financial officer.

Tons shipped in the quarter actually declined to 1.48 million, down from the 1.60 million tons shipped in the same period of 2007. The decrease in tonnage from a year ago was the result of lower shipments to automotive, appliance and construction markets, which were partially offset by higher shipments to service center markets.

For the first nine months of 2008, the company reported record net income of $434.6 million, exceeding the full-year record earnings posted in 2007. Net income for the corresponding 2007 period was $281.0 million.

Sales for the first nine months of 2008 hit a record $6.19 billion compared to $5.31 billion in the first nine months of 2007. Shipments for the first nine months of 2008 totaled 4.79 million tons, down slightly compared to 2007.

AK expects further declines in shipments in the fourth quarter, to about 1.4 million tons. The average selling price is also expected to decline by about 10 percent, and operating profit will move back down to approximately $100 per ton.

President and CEO James L. Wainscott told the analyst community that AK Steel expects to weather the crisis in the financial sector, though leadership will be needed on many fronts to fix the two main problems facing the economy, credit and confidence.

"Credit is the lifeblood of business. Without it, commerce stalls," Wainscott said. "If consumers have little confidence, they're not likely to buy cars or houses or appliances. All of these make for challenging business conditions, but an environment of tighter credit and lower confidence does not mean business is coming to a halt. Business is continuing, albeit at a slower pace."

Much of the company's declining shipments are related to the woes in the automotive market, which in September suffered its worst sales month in 15 years. And while AK Steel has been reducing the percentage of product it sells to the automotive market in recent years, it is still feeling the decline.

"We felt the effects and will continue to feel the effects of the auto slowdown on our shipments," Wainscott said. "The deterioration in auto has caused a diversion of tons to the service center and distribution market."

Wainscott is happy with the performance of the distribution market, which has behaved more prudently in it's buying compared to previous periods of weakening demand. "We find the service centers are not sitting on a pile of high-priced inventory, they've been conservative in their buying patterns. With any sort of uptick in the economy, or uptick in consumer confidence, we won't have to play through that overhang. That's a good thing," he said.

The outlook for AK Steel's two other main products, stainless steel and electrical steel, are more positive. Stainless inventories at service centers reached an 11-year-low in September, so at some point they will need to be replenished. And the forecast for electrical steel is particularly solid, with expectations of double-digit price increases in 2009.

"We're really three businesses, and they're not all in the dumper," Wainscott says.

To illustrate its faith in the electrical steel market, AK Steel is planning its fourth capacity expansion during 2009.

Alcoa

50 Percent Income Drop Prompts Belt Tightening

Alcoa plans to halt all non-critical capital spending in the wake of a significant slowdown in the aluminum market....

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