Reliance Steel's (RS) Unit Clinches BAE Systems Contract
Reliance SteelRS said that its unit, AMI Metals, Inc., has won a multi-year contract from British defense company BAE Systems to provide aluminum plate for the F-35 Joint Strike Fighter ("JSF"), Hawk, and Typhoon programs.
The five-year contract worth $100 million runs Jan 1, 2017 through Dec 31, 2021, with the possibility of further extension. The requirements under the contract include value-added, just-in-time, cut-to-size and cut to shape processing for use by BAE Systems and its subcontractor facilities.
The deal follows AMI Metals' five-year contract (worth around $300 million) with Lockheed Martin LMT to provide aluminum flat rolled material for the F-35 JSF program, inked in Oct 2015. The F-35 JSF is an advanced fighter aircraft that combines stealth, speed and agility. It has been billed as the most advanced fighter jet on the planet.
Reliance Steel is seeing strong demand for its products across aerospace and automotive markets. Demand in the aerospace market is supported by higher commercial aerospace build rates. Strong demand is also witnessed in the automotive market, backed by the company's toll processing businesses in the U.S. and Mexico as well as increased use of aluminum in the industry.
However, Reliance Steel continues to be challenged by weak steel industry fundamentals and soft steel and metals pricing. The U.S. steel industry has been hit hard by increased imports of cheaper steel products.
Moreover, Reliance Steel is still experiencing a weak pricing trend for most of the metals it sells. Prices for carbon steel products are expected remain soft in the near term. Excessive imports are keeping prices for flat roll and plate under pressure. In addition, the company's business in the energy markets remains under pressure due to weak oil pricing.
Reliance Steel is a Zacks Rank #5 (Strong Sell).