| Could AK Steel’s Profit Margins Improve in the Coming Quarters? | |
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Investors Are Optimistic about AK Steel's 2Q15 Results (Continued from Prior Part) AK Steel’s profit margins
Previously, we discussed that AK Steel’s (AKS) per ton adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) fell to $26 in 2Q15. The chart below shows how AK Steel’s per ton EBITDA has fallen over the last couple of quarters.
Clearly, the management was not impressed with such dismal profit margins and expressed hope that the company could increase the per ton profit margins in the coming months. In this part, we’ll discuss some possible factors that could help increase AK Steel’s profit margins going forward.
Lower raw material costs
Steel companies tend to have a lag effect in terms of raw material prices. There are long-term supply agreements with suppliers that tend to have fixed pricing structure. So when raw material prices start falling, it takes some time to reflect in the profit margins. Although raw material prices have started to come down for steel companies, they could fall more once the contracts are renegotiated.
Change in strategy
Steel companies have not been able to take full advantage of lower raw material costs. Several steel companies have an integrated business model. Over the last six odd months, there has been a strategic shift in business strategy of several companies. They are now looking at sourcing raw materials from third parties rather than producing these materials themselves. For example, U.S. Steel (X) has halted a planned expansion of its iron ore mine.
U.S. Steel currently forms 3.9% of the SPDR S&P Metals and Mining ETF (XME). Together, Reliance Steel & Aluminum (RS) and Nucor (NUE) form ~10.4% of XME’s portfolio.
AK Steel also expects steel prices to move up in the coming months. We’ll talk about this in the next part of the series.
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United States Steel Corporation
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CODE : X |
ISIN : US9129091081 |
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ProfilIndicateurs de MarchéVALEUR : Projets & res.Communiqués de PresseRapport annuelRISQUE : Profile actifsContactez la cie |
United States Steel est une société de production minière de fer et de étain basée aux Etats-Unis D'Amerique. United States Steel est cotée aux Etats-Unis D'Amerique. Sa capitalisation boursière aujourd'hui est 6,4 milliards US$ (5,7 milliards €). La valeur de son action a atteint son plus bas niveau récent le 28 mars 2003 à 10,01 US$, et son plus haut niveau récent le 30 novembre 2007 à 98,85 US$. United States Steel possède 176 184 431 actions en circulation. |