Why U.S. Steel’s 1Q16 Average Selling Prices Tanked
A Closer Look at Steel Companies' 1Q16 Earnings and Future Plans
Average selling prices
Steel companies’ earnings are sensitive to changes in steel prices. In recent quarters, steel companies’ earnings have been negatively impacted by falling steel prices.
However, spot steel prices, especially for flat-rolled sheet products, have risen sharply in the last couple of months. In this part of the series, we’ll explore how this impacted different steel companies in 1Q16.
Price fall
All of the steel companies covered in this series reported lower steel prices in 1Q16 compared to the previous quarter. The average steel selling prices for U.S. Steel Corporation (X), Nucor (NUE), and Steel Dynamics (STLD) fell in the ballpark of 20% year-over-year.
However, AK Steel’s average steel selling prices fell by only about 9% compared to the corresponding quarter last year.
AK Steel
As discussed in the previous part, AK Steel (AKS) has deliberately cut its spot sales while increasing its automotive exposure. By reducing its spot exposure and increasing shipments to the automotive markets, AK Steel has achieved three objectives:
Contract sales now account for almost 90% of its total shipments.
Automotive shipments accounted for 63% of AK Steel’s 1Q16 steel shipments.
The company’s exposure to low priced hot-rolled coils (or HRC) fell during 1Q16.
As AK Steel sold more value-added products in the quarter, its average selling prices fell less compared to its peer companies that sold more commodity-grade steel products in the quarter.
Continue reading to the next part of the series to explore how steel companies’ average steel selling prices could play out in 2Q16 and beyond.
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