Steelmakers Get Another Knockdown (AKS, NUE, STLD, X, MT, SCHN)

Commodities & Metals

Published: October 23, 2012 11:43 am

Steelmaker AK Steel Holdings Corp. (NYSE: AKS) reported quarterly earnings today and the results that were better than expected, but earnings per share (EPS) still came in negative. AK Steel joins both Nucor Inc. (NYSE: NUE) and Steel Dynamics Inc. (NASDAQ: STLD) in the bad-news category for steelmakers.

United States Steel Corp. (NYSE: X) and ArcelorMittal (NYSE: MT) have not yet reported third quarter results, but not much is expected from either. The consensus estimates for U.S. Steel call for a break-even quarter on $4.64 billion in revenue. Those estimates reflect a drop from EPS of $0.72 on revenue of $5.1 billion in the same period a year ago.

For ArcelorMittal estimates call for EPS of $0.20 on revenues of $21.2 billion. Those estimates are about flat for EPS, but revenues are down from $24.21 billion a year ago.

In late August, Schnitzer Steel Industries Inc. (NASDAQ: SCHN) lowered its outlook for the third quarter and estimates now call for an EPS loss of $0.01 on revenues of $719.23 million. Schnitzer also fired about 300 workers.

Margins have collapsed everywhere, with India’s steelmakers expected to see weak margins due to an over-abundance of steel related to falling demand in China. South Korea’s steel giant, Posco, received a credit downgrade yesterday at Standard & Poor’s from ‘A-’ to ‘BBB+’. The downgrade was partially attributed to “deteriorating fundamentals in the steel industry and erosion of the company’s competitive position.”

S&P also had this to say about China’s steelmaking capacity:

[W]e expect spare steel capacity in China to be significant and, as a consequence, an overflow of steel into neighboring countries such as Korea to continue to be the main culprit behind lower profitability in the regional steel industry despite recent signs of improvement in production discipline in China.

For its part, AK Steel noted today that it expects to take a net loss in the fourth quarter. Nucor said it also expects lower earnings in the fourth quarter.

Shares of AK Steel are down about 6.5% just before noon today at $5.15 in a 52-week range of $4.44 to $10.33. All the other U.S. steelmakers are also trading down today.

Paul Ausick

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