With the gradual increase in the iron ore and coking coal prices due to increase in demand, AK Steel Holding Corporation (AKS - Analyst Report) might consider obtaining raw material assets from outside. Acquiring pieces and parts of raw materials will help the company in lowering its costs.
The profitability of the steel sector is closely tied to the prices of necessary raw materials. Considering the steel industry, these materials include iron ore, coal, coke, oxygen, chrome, nickel, silicon, molybdenum, zinc, limestone, carbon, stainless steel scrap, etc. Depending on the holdings of each firm, drastic changes in the prices of these raw materials can have profound effects on revenues and profits.
We believe AK Steel is uniquely positioned to focus on products with high margins. Electrical steel continues to be the company’s strongest product line, with demand recovering in the U.S. and abroad, though at a slower rate. AK Steel is operating its plants at above 80% capacity and is well positioned to serve the end markets when the demand rebounds.
However, higher input costs, particularly iron ore, is eroding margins of the company. Iron ore pricing concerns have led to a negative outlook for steel manufacturers. A K Steel currently retains a Zacks #1 Rank (short-term Strong Buy rating).
Ohio-based AK Steel Holding Corporation is a leading producer of flat-rolled carbon, stainless, electrical steel and tubular products. It operates 7 steel-making and finishing plants in Ohio, Pennsylvania, Indiana and Kentucky.
The basic raw materials required for the steel manufacturing are iron ore, coal, coke, chrome, nickel, silicon, manganese, zinc, limestone, and carbon and stainless steel scrap. Natural gas, electricity and oxygen are the sources of power for steel manufacturing operations. The company competes with companies like Nucor Corporation (NUE - Analyst Report) and Steel Dynamics Inc. (STLD - Snapshot Report).