On Jun 24, we issued an updated research report on steel maker
AK Steel Holding Corporation
). While the company should gain from strong upward momentum in the
automotive market this year, it is expected to face challenges in
the second quarter.
AK Steel posted a bigger loss in first-quarter 2014, reported on
Apr 22, hurt by blast furnace outages, income tax charges and
higher energy costs. The adjusted loss, however, was lower than the
Zacks Consensus Estimate. Sales rose modestly but missed
AK Steel, a Zacks Rank #3 (Hold) stock, is expected to benefit
from strength in the automotive market and higher shipment of steel
products to automakers. The company gets more than half of its
revenues from this market which continues to show strong
AK Steel's automotive shipments were at their highest level in
seven years in the first quarter. Light vehicle production is
expected to rise 4% year over year to 16.8 million units in North
America in 2014. The company is expected to continue to gain
automotive market share in 2014, driven by continued solid demand
for its carbon and stainless steel products from its automotive
AK Steel is also investing to procure about half of its iron ore
and coal requirements internally. It is making good progress with
its first coal mine at AK Coal and is ramping up mining volumes. AK
Steel is also making significant progress with its iron ore pellet
project at Magnetation. Production of first pellets is expected by
fourth-quarter 2014 with a ramp up to full capacity in 2015. Both
these strategic investments are expected to improve the company's
cost structure and strengthen its position in the years ahead.
However, AK Steel is expected to post a loss in the second
quarter due to higher costs from the lingering impact of harsh
winter weather. It expects to see increased costs in the quarter as
extreme weather conditions delayed the start of the 2014 shipping
season and impacted the movement of Canadian iron ore.
Moreover, in the second quarter, supply of iron ore to the steel
industry was lesser than expected and hence the company cut its
production rate in order to be at par with the supply level.
Transportation costs for iron ore pellets are expected to be higher
in the quarter.
AK Steel also remains exposed to macroeconomic uncertainties.
Oversupply in the steel industry and pricing pressure remain as
Other Stocks to Consider
Some other stocks worth considering in the steel space include
Universal Stainless & Alloy Products Inc.
Grupo Simec S.A.B. de C.V.
). While both Universal Stainless and Grupo Simec have a Zacks Rank
#1 (Strong Buy), ThyssenKrupp holds a Zacks Rank #2 (Buy).
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