| Could AK Steel’s Profit Margins Improve in the Coming Quarters? | |
| | |
|
Investors Are Optimistic about AK Steel's 2Q15 Results (Continued from Prior Part) AK Steel’s profit margins
Previously, we discussed that AK Steel’s (AKS) per ton adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) fell to $26 in 2Q15. The chart below shows how AK Steel’s per ton EBITDA has fallen over the last couple of quarters.
Clearly, the management was not impressed with such dismal profit margins and expressed hope that the company could increase the per ton profit margins in the coming months. In this part, we’ll discuss some possible factors that could help increase AK Steel’s profit margins going forward.
Lower raw material costs
Steel companies tend to have a lag effect in terms of raw material prices. There are long-term supply agreements with suppliers that tend to have fixed pricing structure. So when raw material prices start falling, it takes some time to reflect in the profit margins. Although raw material prices have started to come down for steel companies, they could fall more once the contracts are renegotiated.
Change in strategy
Steel companies have not been able to take full advantage of lower raw material costs. Several steel companies have an integrated business model. Over the last six odd months, there has been a strategic shift in business strategy of several companies. They are now looking at sourcing raw materials from third parties rather than producing these materials themselves. For example, U.S. Steel (X) has halted a planned expansion of its iron ore mine.
U.S. Steel currently forms 3.9% of the SPDR S&P Metals and Mining ETF (XME). Together, Reliance Steel & Aluminum (RS) and Nucor (NUE) form ~10.4% of XME’s portfolio.
AK Steel also expects steel prices to move up in the coming months. We’ll talk about this in the next part of the series.
Continue to Next Part Browse this series on Market Realist:
|
|
|
United States Steel Corporation
|
|
|
CODE : X |
ISIN : US9129091081 |
|
| |
ProfileMarket IndicatorsVALUE : Projects & res.Press releasesAnnual reportRISK : Asset profileContact Cpy |
United States Steel is a iron and tin producing company based in United states of america. United States Steel is listed in United States of America. Its market capitalisation is US$ 6.6 billions as of today (€ 6.2 billions). Its stock quote reached its lowest recent point on March 28, 2003 at US$ 10.01, and its highest recent level on November 30, 2007 at US$ 98.85. United States Steel has 176 184 431 shares outstanding. |