AK Steel Holding Corporation (AKS - Analyst Report) finally issued its fourth-quarter 2011 guidance, having deferred it earlier because of the uncertain and volatile economic conditions .
The company expects non-cash, pre-tax corridor charge of approximately $250 million in the fourth quarter. The $250 million estimate was arrived utilizing the current estimated discount rate and asset return rate based on calculation. The final amount is subject to fluctuations in market performance and interest rate assumptions from now until December 31.
AK Steel expects shipments and selling prices to rise in the fourth quarter from a year earlier, while operating costs are expected to fall from the previous quarter.
The steelmaker expects to incur an operating loss of $40 to $45 per ton for the fourth quarter. The company forecasts shipments to increase 3% to $1.4 million tons. Average per-ton selling prices are expected to increase 5% from a year ago, but to slip 8% sequentially due to lower spot-market pricing and a lower value-added product mix.
As per the company, operating costs would be lower compared with the third quarter on the back of product mix and the effect of a credit from an accounting method called LIFO, partially offset by lower operating rates. The company had previously expected to incur a LIFO charge.
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 the company’s margins. Iron ore pricing concerns have led to a negative outlook for steel manufacturers. A K Steel currently retains a Zacks #3 Rank (short-term Hold 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 Nucor Corporation ((NUE - Analyst Report), U.S. Steel Corp. ((X - Analyst Report) and Steel Dynamics Inc. ((STLD - Snapshot Report).