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AK Steel Well Placed on Auto Strength, Dearborn Buyout

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On Jul 5, we issued an updated research report on steel maker AK Steel (AKS - Free Report) .

AK Steel posted lower loss in the first quarter of 2016. Loss per share was narrower than the Zacks Consensus Estimate. Sales fell year over year on lower shipments, but beat expectations.

AK Steel, which is among the prominent players in the U.S. steel industry along with Nucor Corp (NUE - Free Report) , U.S. Steel (X - Free Report) and Steel Dynamics (STLD - Free Report) , should benefit from strength in the automotive market and higher shipment of steel products to automakers, supported by increased automotive builds. AK Steel is witnessing continued momentum in the automotive market. Automotive contribution to the company’s revenues was 60% last year.  

Automakers are witnessing higher production and sales, which are driving the shipments of AK Steel’s stainless steel products. Solid demand for the company’s carbon and stainless steel products from its automotive customers is expected to continue in 2016. Industry experts expect light vehicle production to increase 3% in 2016 compared with 2015. This is expected to support demand for the company’s value-added products in this key market.

Moreover, the acquisition of the Severstal Dearborn plant has provided AK Steel an access to highly modernized and upgraded steelmaking equipment and facilities. With the acquisition, AK Steel expects its annual shipments to exceed 7.5 million tons. The company achieved costs synergies of around $59 million from the acquisition in 2015, exceeding its expectations.

Steel market conditions in the U.S. have also improved of late, thanks to favorable rulings (leading to levy of tariffs on imports) on steel trade cases in the recent past that have resulted in a decline in steel imports in the first four months of 2016.

AK Steel also remains committed to provide competitive pricing in the current operating environment. Price increases in the spot market for various steel products have been observed of late.

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