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Did Ford's 2014 Outlook Just Crush the Steel Industry's Spirit?

Reuben Brewer
December 23, 2013

Ford (NYSE: F) just updated its 2013 guidance and provided a somewhat dour outlook for 2014. The shares fell hard. If you own steel manufacturers you have to ask yourself if Ford's tough year is going to translate into a tough 12 months for the steel industry.

"At risk"
The big headline grabbing quote from Ford wasn't that 2013 was likely to be a good year for the company. It was that "Ford generally remains on track to achieve its mid-decade outlook, but its targeted global Automotive operating margin of 8 percent to 9 percent is at risk." Investors don't like it when a company says that it is "at risk" of missing projections. No wonder the shares gaped lower on the news.

F Chart

F data by YCharts

Worse for Ford shareholders, the automaker warned that next year will be a tough one with lots of new product launches pressuring results amid heightened industry competition. While that's bad news for Ford, it doesn't mean steel manufacturers like AK Steel (NYSE: AKS), U.S. Steel (NYSE: X), and Nucor (NYSE: NUE) need to worry.

Sales and Aluminum
However, looking a bit harder at Ford's 2014 sales estimates changes that view a bit. Essentially, the only market in which the automaker is expecting notable growth next year is China. That country is expected to see at least a 600,000 vehicle volume uptick. The United States and Europe could see growth, but the low end sales volume estimates are for essentially flat or lower sales.

That's not surprising since Europe and the United States are both mature markets. However, flat sales doesn't translate into more steel demand. Couple that with a shift toward lighter materials like aluminum, which Ford is planning to use in an updated version of its popular F-150 pickup, and U.S. steel producers could be looking at a tougher auto market.

A dimming bright spot
A demand slowdown in the auto space would be a big problem for steel. That's because, as Nucor CEO John Ferriola said during his company's third quarter conf