The pricers at AK Steel (AKS) are at it again. This time, the company announced price hikes for carbon steel products:
“Base prices will increase by $50 per ton for hot rolled and cold rolled carbon steel products, and by $60 per ton for coated carbon steel products.”
AKS is facing higher input costs for making steel. More importantly, the company is experiencing stronger demand for its carbon steel products.
Disclosure: author owns shares in AKS
What’s a debate about inflation without more price hikes from a steel company?
AK Steel (AKS) announced additional surcharges today based on “…reported prices for raw materials and energy used to manufacture the products.” This announcement is one more small reminder of how commodity price pressures begin pushing their way through the supply chain:
“AK Steel…has advised its customers that a $390 per ton surcharge will be added to invoices for electrical steel products shipped in May 2011.”
Disclosure: author owns shares in AKS
When AK Steel (AKS) reported earnings for the latest quarter, the company made it clear that it would drive for more pricing power with its customers. True to form, AKS has already announced three separate price hikes in the past in less than three weeks:
“AK Steel Announces March 2011 Surcharges For Electrical And Stainless Steels”
AKS announces “…a $430 per ton surcharge will be added to invoices for electrical steel products shipped in March 2011.”
“AK Steel Announces Price Increase For Carbon Steel Products”
AKS announces it “…will increase current spot market base prices for all carbon flat-rolled steel products, effective immediately with new orders. Base prices for carbon flat-rolled products will increase by $50 per ton.”
“AK Steel Announces Stainless Steel Price Increase”
AKS announces “…it will increase base prices for all 200, 300 and 400 series flat rolled stainless steel products, effective with shipments on February 27, 2011….Base prices of automotive exhaust grades will increase by $.04 per pound. In addition to the base price increases, AK Steel will increase the price for its bright anneal finish extra by $.05 per pound.”
Disclosure: author is long AKS stock
Talk to any steel company, and you will quickly discover the impact of commodity inflation. Steel companies in general have struggled to keep up with the soaring prices of coking coal and iron ore. It seems it is only a matter of time before these price pressures begin to push their way into the rest of the economy.
For example, in its latest earnings report, AK Steel (AKS) announced its plans for achieving greater pricing power by passing on input prices more quickly to its customers. We have also chronicled many of AK Steel’s price increases over the past year.
In “Steel-Price Increases Creep Into Supply Chain“, The Wall Street Journal demonstrates how steel companies are responding to higher input costs by passing along these costs to their customers:
“Steelmakers have increased prices six times, for a total increase of 20% to 30%, since November on basic flat-rolled steel, used in everything from cars to toasters, to offset higher input costs of raw materials, such as iron ore and coal. Higher costs for steel, which are expected to continue well into this year, are hitting bottom lines of companies and prompting additional price increases.”
The general expectation seems to insist that these pricing pressures will not percolate into final end consumer prices. However, I believe this thinking is just the lingering aura of the deflationary mindset of the last recession, and it will fade as surely as commodity prices have soared.
Disclosure: Author owns shares in AK Steel
AK Steel (AKS) is increasing prices yet again. Effective today and starting with new orders, AKS announced: “…it will increase current spot market base prices for all carbon flat-rolled steel products…Base prices for carbon flat-rolled products will increase by $40 per ton.” AKS explained the reason for this price hike as a “…response to increased demand for carbon steel products, as well as the need to recover higher costs for steelmaking inputs.”
Since July, 2010, AKS has increased prices at least 10 times: four increases for carbon steel products and six increases in surcharges for electrical and stainless steel.
Full disclosure: author owns shares in AKS
A common theme has connected the earnings reports of most steel companies: lower prices for many steel products and higher input costs. This margin squeeze has produced poor earnings, and steel companies are providing very cautious outlooks. While pricing for steel products varies – some strong, some weak – the increasing cost pressures are near universal. Inflation is very real for these companies.
Arcelor Mittal (MT), AK Steel (AKS), and U.S. Steel (X) all reported this week. I have included some quotes from their earnings report to provide some examples of the pressures that these companies face.
“In Q3 the business performed towards the lower end of our expectations against a background of seasonally lower volumes, weakening spot prices and higher costs. Our outlook for Q4 remains cautious as the expected higher input prices continue to work through the business and demand remains muted, though with some regional differences.”
“Sales were lower during the third quarter of 2010 as compared to the second quarter of 2010 due to seasonally lower volumes (-8%), partly offset by higher average steel selling prices (+4%).”
“Sales in the Stainless Steel segment were $1.4 billion for the three months ended September 30, 2010, a decrease of 12% as compared to $1.5 billion for the three months ended June 30, 2010. Sales declined primarily due to lower steel shipments (-8%) as discussed above and lower average steel selling prices (-5%) due to a weak market environment and pressure from imports.”
“The company said its average selling price for the third quarter of 2010 was $1,075 per ton, a 2% decrease from the $1,101 per-ton price in the second quarter of 2010, and approximately 8% higher than the $994 per-ton average price realized in the third quarter of 2009.”
“2010 Iron Ore Price Increase Impacts Third Quarter:
AK Steel said that it has agreed with two of its three primary iron ore suppliers that the requirements for the establishment of the annual benchmark price of iron ore for 2010 have been met. That 2010 benchmark is an increase of 98.65% over the 2009 benchmark, and is higher than the 65% increase the company had previously estimated for the first half and for its third quarter guidance. The third primary supplier of iron ore to the company has not acknowledged yet that an annual benchmark price has been established. Instead, that supplier continues to seek a price increase in excess of the 98.65% annual benchmark price. The company does not agree that this supplier has a right under the parties’ contract to charge based on other than an annual benchmark price and, for purposes of the iron ore purchased from this supplier, the company has used an estimated benchmark price increase of 98.65% in its third quarter financial results.”
“The company’s third quarter 2010 financial results reflect the year-to-date impact of the higher iron ore price, which increased the company’s third quarter operating loss by approximately $76.0 million, or $52 per ton.”
“AK Steel said it expects shipments of approximately 1,300,000 to 1,350,000 tons for the fourth quarter, with an average selling price per ton decrease of approximately 4% from the third quarter. While the company expects fourth-quarter maintenance costs to decrease by about $20 million from the third quarter, it nonetheless expects to incur an operating loss of approximately $80 per ton for the fourth quarter of 2010, largely due to the lower shipments and selling prices combined with continued high iron ore and other raw material costs.”
(Quotes transcribed and paraphrased)
“Results declined in 3rd quarter from 2nd from lower flat-rolled average prices, higher raw material costs in flat-rolled segment and European operations: decreased shipments and production volumes, decreased average realized prices, increased costs for facility repair and maintenance (higher activity, not input costs), and consumption of higher cost coal, coke and iron ore purchased to support earlier facility restarts. Decreased spot prices more than compensated for increased contract prices.”
“In 4th quarter, expect lower average realized prices, lower spot and contract.”
“Tubular operations had higher average prices for fifth quarter in a row. Decreased costs for steel substrate. Not expecting same price performance in 4th quarter but costs should continue down.”
Disclosure: author owns X and AKS
Yesterday, AK Steel (AKS) warned investors that earnings would be lower than expected partly due to increasing material costs (mainly iron ore). Today, AK Steel told its customers that prices will increase as part of an effort to recoup some of those rising material costs. These price hikes are also enabled by strong demand for stainless steel products.
AKS will raise prices for specialty flat-rolled stainless steel products by about 5% to 10%. These products include “…tensilized, bright annealed and special finishes, along with special mechanical requirements.”
Full disclosure: author owns shares of AKS
AK Steel (AKS) reduced its earnings outlook, partially due to higher material costs:
“The company’s revised third quarter outlook primarily reflects costs associated with the acceleration of planned maintenance work at its Ashland (KY) blast furnace, as well as higher raw material and operating costs than were expected at the time of its previous guidance…
…The impact of these changes on the company’s original guidance for the third quarter would result in an operating loss of approximately $20 per ton for the third quarter of 2010. The company’s original guidance was for an operating profit of $15 per ton for the third quarter. Nearly half of the lower expected financial results for the third quarter are attributable to the acceleration of the Ashland blast furnace outage.”
AKS goes on to state that it is expecting that the 2010 global iron ore benchmark price will increase higher than the company’s previous expectations for a 65% year-over-year gain.
Full disclosure: author owns shares in AKS
Steel stocks have taken a beating since last making 52-week highs at the beginning of April. For example, the Market Vectors Steel ETF, SLX, is down 12% over this time (see chart below). However, the price increases continue to roll out from steel companies like AK Steel (AKS).
Yesterday, AKS announced two price hikes:
“…it will increase base prices for all 200, 300 and 400 series flat rolled stainless steel products by 6% to 9%, depending upon the grade and product form, effective with shipments on May 30, 2010.” (AK Steel Announces Stainless Steel Price Increase)
“…a $435 per ton surcharge will be added to invoices for electrical steel products shipped in June 2010.” (AK Steel Announces June 2010 Surcharges For Electrical And Stainless Steels)
Full disclosure: Author owns AKS
Another month, another price increase for AK Steel (AKS). Yesterday evening, AKS announced a $40/ton price hike on all carbon steel products. The company explained the reasons for the increase:
“…the price increase is in response to increased demand for carbon steel products, as well as the need to recover higher costs for steelmaking inputs.”
The recovery in the steel industry continues…
AK Steel (AKS) fourth quarter and annual earnings this morning. The outlook for the first quarter includes an expected increase in average selling price of 3-4%. This price hike appears consistent with a recent series of price hikes from AKS (as reported here on Inflation Watch).
AKS returned to profitability in the third quarter of last year and expects to remain profitable in this year’s first quarter despite shipments remaining flat with fourth quarter levels.
Full disclosure: author intends to purchase AKS today
AK Steel (AKS) continues to roll out price increases. On December 8th, AKS announced price increases on carbon steel products:
“[AKS] said today that it will increase spot market prices for its carbon steel products by $30 per ton for all new orders accepted for shipment on January 1, 2010 and later. This price increase is in addition to a previously announced increase of $20 per ton for carbon hot rolled products, and $30 per ton for carbon cold rolled and coated products, which is also effective with January 1, 2010 shipments.
AK Steel said that the price increase is in response to increased demand for carbon steel products, as well as the need to recover higher costs for steelmaking inputs.”
AK Steel (AKS) has been increasing prices on its steel products since the beginning of summer (click here for a summary). The pricing for December delivery continues the trend:
“AK Steel has advised its customers that a $185 per ton surcharge will be added to invoices for electrical steel products shipped in December 2009…AK Steel’s surcharges are based on reported prices for raw materials and energy used to manufacture the products, with the October 2009 purchase cost used to determine the December 2009 surcharges.”
Last week, I noticed media headlines screaming the horrible news that “Crude steel output in 2009 to hit lowest level in 40 years.” As I searched for the direct source of this quote from Japan’s Ministry of Economy, Trade, and Industry (METI), I stumbled upon its “Preliminary Report on Iron and Steel, Non-ferrous metal, and Fabricated metals Products Industry.” From my standpoint, the monthly data shown below clearly demonstrates that steel production likely bottomed in March/April and is in the middle of a rapid recovery (charts copied below). So, yes, when the year is all said and done, the aggregate numbers will look terrible – as will most aggregate economic data – but the current trend seems to suggest that some kind of recovery is in place.
The price of steel rose all summer and finally stumbled again in September. On Sept 4, Reuters reported: “Chinese spot steel prices fell 2.6 percent in their third consecutive weekly fall, led by construction steel, as major mills continued to cut prices on weakened demand following a steep price run-up in recent months. After a months-long rally to a 10-month high in early August, China’s steel prices turned lower and prices of benchmark hot-rolled coil fell.” Two weeks later, the Wall Street Journal had dour news about the U.S. steel industry: “Steel Prices Drop, Reversing Course in Sign Mills Ramped Up Too Quickly.” Specifically, “Hot-rolled steel, a benchmark grade that typically is processed into cars, building structures or appliances, cost about $600 to $620 a metric ton in August. Now it can be had for about $550-$570 a ton, a drop of about 8%.” However, the article also quotes the president of the American Institute for International Steel claiming that “Steelmakers overreacted in swiftly closing steel mills last year and in early 2009…they took out too much production.” Indeed, U.S. steelmakers increased production each of the previous 11 weeks.
Overall, it seems that the recent price decline remains a hiccup amidst an upward trajectory from an ugly bottom. The evidence from this summer’s bout of price increases suggest that demand for steel is firming and customers are absorbing a myriad of price increases (including surcharges). The list below is a sample of the wide array of price increases in steel-related products from this past summer. Given the stall noted for September, October’s round of earnings announcements will be critical in determining whether the upward momentum still has legs. Until then, it seems to me that the decline in steel prices and production has been arrested for now and further increases in demand will drive additional inflationary momentum in steel.
- June 1: AK Steel (AKS) announces “…it will increase spot market prices for its carbon steel products by $20 per ton effective with new orders scheduled for delivery on July 1, 2009 and later.”
- June 18: AKS announced “…it will increase spot market prices for all carbon and stainless flat rolled steel products.” The various price increases appear comprehensive in scope and type.
- July 09: AKS announced “…it will increase spot market prices for its carbon steel products, effective with all new orders for August and September shipments. Base prices for hot rolled products will increase by $40 per ton. Base prices for cold rolled and coated products will increase by $50 per ton.”
- July 23: Nuecor (NUE) announced during its earnings conference call that it would implement price increases for the first time in nine months: “With stronger demand, we are implementing price increases in each of our products for the first time in about nine months. These stronger business conditions have continued into July. Across all of our steel mill products, we believe the catalyst for this upturn in demand is the result of service centers completing their inventory, destocking cycle.” (Seeking Alpha transcripts)
- July 23: Synalloy Corporation (SYNL) announced during its earnings conference call that “…surcharges have increased every month since May 2009, and our steel suppliers implemented a 6% price increase on May 1, 2009 and a second 6% price increase on July 1, 2009, which the industry thinks will be accepted in the marketplace.”
- July 28: U.S. Steel (X) responded to an increase in demand by increasing prices: “We have began to bring up idle facilities inline with customer demand, and we have implemented price increases in our Flat-rolled and USSE segments in the third quarter.” (Seeking Alpha transcripts).
- Jul 29: Arcelor Mittal (MT) announced during its earnings conference call that it expects increases in base prices in Europe. (Briefing.com)
- July 30: AKS announced “…it will increase spot market prices for its carbon steel products by $40 per ton, effective with all new orders for September and October shipment.”
- Aug 04: AKS announced “…it will increase base prices for all 200, 300 and 400 series flat rolled stainless steel products by 6% to 9%, depending upon the grade and product form, effective with shipments on August 30, 2009.”
- Aug 06: Gerbau Ameristeel claims during its earnings conference call that “During the quarter, we saw a stabilization of volumes as destocking by our customers appears to be slowing, as well as a firming of steel prices across all steel products.”
- Sept 01: AKS announced “…it will increase spot market prices for its carbon steel products, effective with all new orders. Base prices for hot rolled products will increase by $40 per ton. Base prices for cold rolled products will increase by $50 per ton. And, base prices for coated products will increase by $60 per ton.”
Be careful out there!
Full disclosure: long X calls, STLD