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