AK Steel sets Q3 net loss, sees same trend in Q4

NEW YORK Tue Oct 26, 2010 6:43pm EDT

NEW YORK (Reuters) - AK Steel (AKS.N) posted a third-quarter net loss on Tuesday, with soaring raw material costs and a plant shutdown undermining the effect of higher steel prices.

The West Chester, Ohio-based company also said it expects stagnant conditions to lead to another operating loss in the fourth quarter.

The U.S. steelmaker's shares closed on the New York Stock Exchange nearly 4 percent lower at $12.84 per share.

A pre-announced, 11-day maintenance outage at its Ashland Works blast furnace contributed to the quarterly loss. The shutdown was moved up from first half of 2011 and has been completed but added to third quarter costs.

"Our results were negatively impacted by a significant increase in raw material costs principally for iron ore, along with costs related to the acceleration of a planned maintenance outage at our Ashland works blast furnace," Chairman, President and Chief Executive Jim Wainscott later told analysts on a conference call. He said the Ashland furnace was running and set to produce slabs for 18 to 24 months with no outages.

For the fourth quarter, Chief Financial Officer Albert Ferrara said, market softness and seasonal factors should reduce shipments to 1.3 million to 1.35 million tons, and the average selling price should fall 4 percent from third quarter, due to lower spot market pricing and a change in product mix.

AK Steel also expects lower maintenance costs of about $20 million for the quarter to be more than offset by lower sale prices and production, along with increased iron ore and other raw material costs. The steelmaker forecast an overall fourth-quarter operating loss of about $80 per ton.

"We're somewhere between recession and recovery. And with that kind of an economy, demand for our products is less than we'd previously anticipated. Accordingly, selling prices, in particular for carbon steel products, have been under pressure," said Wainscott, adding that the cost of raw materials remains at or near record highs.

The company reported a third-quarter net loss of $59.2 million, or 54 cents per share, compared with a net profit of $6.2 million, or 6 cents per share, for the same quarter of 2009.

Sales were $1.58 billion on shipments of 1,465,800 tons -- up from $1.04 billion on 1,047,800 tons shipped a year earlier, but down 16,000 tons from the second quarter.

The average selling price of $1,075 per ton was 8 percent higher than the 2009 quarter, but down 2 percent from second quarter. Strength in the euro positively affected third-quarter results with a foreign exchange gain adding $8 million.

The company's third-quarter operating loss also reflected year-to-date impact of a 98.65 percent jump in benchmark iron ore prices over 2009 levels, increasing the quarterly loss by about $76 million, or $52 per a ton. The higher 2010 annual benchmark iron ore price, agreed with two of its three major suppliers, was well above the 65 percent estimated increase.

The steelmaker said its third-quarter operating rate was 82 percent compared with 89 percent in the second quarter, with the automotive market accounting for about a third of its shipments. It expects full-year automotive shipments to be about a third higher than in 2009.

Among its other markets, service centers seem to have taken a more cautious stance, waiting to place orders until they work off existing inventory and feel prices have bottomed.

"What that means is, at present, carbon steel service centers are servicing only to meet current needs. Clearly this is one of the reasons we're guiding to lower shipments for our fourth quarter compared to our third quarter," said Wainscott.

Demand was strong, however, for its 300 series stainless products. In September, AK Steel set a monthly shipping record for nickel products. Since then, however, 300 series customers have become more cautious, an attitude the steelmaker expects to continue as the fourth quarter progresses.

The company's third-quarter 400 series stainless, or auto exhaust, business also remained strong. It sees demand from appliance makers holding in the segment in the fourth quarter.

"In fact, we're sold out into the early part of 2011."

Asked whether AK Steel was looking for a buyer, Wainscott said, it needed more vertical integration, lower costs and sustained profitability, but, "The company's not for sale."

(Additional reporting by Steve James; Editing by Gerald E. McCormick and Steve Orlofsky)

FILED UNDER: