Please ensure Javascript is enabled for purposes of website accessibility

Why AK Steel Stock Dropped 8% Today

By Rich Smith – Apr 11, 2019 at 9:07PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

What's bad for one steelmaker could be bad for others.

What happened

Shares of Ohio steelmaker AK Steel (AKS) fell as much as 10% in trading early Thursday before retracing just a bit, to close the day down 8.3%.

You can probably blame its rival U.S. Steel (X -0.04%) for that -- and Merrill Lynch, as well.

Molten steel pouring in a foundry

Image source: Getty Images.

So what

In a rather shocking development, Merrill Lynch "double-downgraded" AK rival U.S. Steel this morning, pulling a complete 180 and cutting its rating from buy all the way down to underperform. Merrill noted that near-term U.S. steel market conditions are worsening. On top of that, price increases that U.S. Steel had attempted to impose on its customers not only didn't stick, but benchmark hot-rolled coiled steel prices have actually retreated to their lowest point so far this year, as reported by StreetInsider.com.

Now what

That's bad news for U.S. Steel, but not only for U.S. steel. A weak steel market can be expected to hurt all steel producers in the U.S., AK Steel included. Additionally, price hikes by U.S. Steel -- had they stuck -- would have given AK Steel cover to raise its own prices in tandem. The fact that those price increases didn't stick, however, means that AK will have difficulty implementing any price increases of its own.

Long story short, Merrill Lynch didn't downgrade AK Steel today -- but it might as well have.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.