AK Steel 4Q16 Earnings Call Notes

AK Steel Holding (AKS) CEO Roger Newport on Q4 2016 Results

Most industry sources are predicting a minor decline in automotive production

“As we look at 2017, most industry sources are predicting a minor decline in North American automotive production rates of about 1% to 3% compared to 2016, but this comes after the all-time record year of 2016. So even if such decline would indeed materialize, we would still anticipate another solid year in the automotive market. We remain focused on growing our core automotive business, and we expect some modest shift in products and customer mix as we transition also certain platforms and transition onto others.”

Electrical steel trade case loss

“In 2017, we will work with the new administration including to the Department of Commerce and the U.S. Trade Representative tasked with ensuring free and fair trade. Unfortunately, not all the recent steel-related trade cases have resulted in positive determinations. We are very disappointed that our appeal of the 2013 Grain-Oriented Electrical Steel or GOES trade case ruling was denied in late November. I believe that this case demonstrated some of the inherent weaknesses we previously had in our trade laws prior to the enhancement of the Leveling the Playing Field Act in 2016. Ultimately, an unleveled playing field will limit the amount of capital investments being made in this country. In the face of the negative determination in the GOES trade case, there has been added pressure on domestically produced electrical steel products caused by higher import levels. As a result, the only other domestic producer of electrical steel was forced to shut down their electrical steel operation and exit the market in 2016. This resulted in the loss of additional steel jobs in America. We believe the electrical steel situation is an issue of national security, needs to be addressed to ensure that the United States does not eventually become solely dependent on obtaining electrical transformers and/or their steel components from China or other foreign country for our critical electrical infrastructure. ”

Other countries are filling the void in stainless

” Although, we believe that the stainless trade case against China has had a positive impact on domestic market conditions, we are seeing some evidence of other countries now filling the China void, just as it also occurred with the carbon steel rate cases. However, one important distinction in our stainless businesses that the demand for our chrome based stainless products is driven primarily by the automotive market since we are not a major player in the commodity stainless arena.”

It’s not a surprise to see met coal prices moving back up

“What comment first on the met coal and then Kirk mentioned on AK, but met coal in general let’s say met coal most of the mining companies went bankrupt. So, they told you the pricing was pretty much at a floor. So, there was going to be some adjustment eventually in the market conditions just like we’ve seen in a lot of other commodities. Eventually, it has to correct itself so it’s a viable business. So, there was not a surprise to see coal starting to go back up.”