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