What: AK Steel Holding Corporation's (AKS) stock declined just over 20% in September, continuing a trend that picked up speed in the middle of the year.
So What: AK Steel is a major U.S. steel maker that primarily uses blast furnaces to produce the metal it sells. That's older and more expensive technology than the electric arc furnaces that some competitors use. So with steel prices weakened by a global oversupply of the metal, AK Steel's profitability has been under more pressure than some peers.
Add to this the fact that all of the major U.S. mills have been highlighting the increasingly painful onslaught of low-priced foreign steel into the U.S. market. In fact, AK Steel itself came out with updated guidance for the third quarter that blamed foreign imports for an anticipated 2% decline in the company's average pricing. Although demand was projected to be up 3% and it believes results will be better in the 2015 third quarter than they were in the 2014 third quarter, AK Steel still projected that its bottom line will be in the red.
In other words, AK Steel just came out and confirmed that the headwinds that it and the entire U.S. steel industry are facing aren't abating. And since some of the issues, such as a slowdown in China's growth, are long-term in nature, that's much bigger than a one-quarter issue. No wonder investors soured on the shares.
Now what: AK Steel is suffering through the bottom of a the cyclical steel industry. And this downturn is being exacerbated by the economic slow down in China. So there's not a whole lot to get excited about here. That said, for more aggressive investors with a contrarian bent, it might be a good time to examine the steel industry and AK Steel. But only if you are willing to ride out the continuing storm, since it simply isn't over yet.
