Between the Fortune 500 company’s headquarters in West Chester Twp. and the Middletown Works steel plant, AK Steel employs approximately 2,400 full-time workers here. AK Steel’s operations in Ohio, Kentucky, Indiana, Pennsylvania and Minnesota employ more than 6,000 altogether.
Interview requests from this newspaper to speak with Wainscott in person or over the phone about his tenure were declined. The Journal-News has not had a sit-down interview with Wainscott since 2006.
However, the leader of one of the region’s largest publicly-traded companies provided written responses to this newspaper’s questions about changes over the years, the state of the company and its future.
Since Wainscott became CEO in 2003, “there have been a number of massive changes to the steel industry. AK Steel experienced a remarkable recovery as we focused on the ‘three C’s’ — customers, costs and cash. That recovery was followed by America’s Great Recession and the severe global economic downturn,” he said in a written statement.
During this time, “the automotive industry restructured. Global steel capacity grew exponentially, led by China’s 10-fold expansion. As a result, prices for raw materials skyrocketed to record levels,” Wainscott said. “Global steel production overcapacity put pressure on steel selling prices.”
AK Steel Holding Corp. produces flat-rolled carbon, electrical and stainless steels used by the automotive, appliance, construction and manufacturing markets. AK Steel product goes in many big-ticket items such as cars, refrigerators and washers.
In a top leadership shake-up, Wainscott was named acting CEO in September 2003. At the time, AK Steel stock was trading for less than $3 a share.
He said the company has worked hard the past 10 years to improve its relationships with customers, suppliers, labor unions, communities in which it operates, and others.
“We rebuilt a steel company without forgetting about those who built it in the first place,” Wainscott wrote.
In efforts to lower costs, new agreements were reached with labor unions representing hourly workers. Pension and retirement benefits were negotiated and the company sought fewer job classifications.
When AK Steel and the former Armco Employees Independent Federation representing hourly workers of Middletown Works failed to reach an agreement on a new labor contract in 2006, the contract expired. A year-long lockout of union members followed. Replacement workers were trained to work at the steel plant.
After a new labor agreement was reached in Middletown in 2007, AK Steel’s largest plant, the company set record earnings that year of $387.7 million.
Riding a construction and housing boom, AK Steel stock hit a high closing price in May 2008 of $72.89 a share, at one point reaching above $73.
Then the Great Recession happened. Demand for new cars and homes slumped.
Since turning a $4 million profit in 2008, AK has recorded four consecutive years of losses, including a $1 billion net loss for 2012. Concerns about the steel industry and AK Steel’s competitiveness sank the stock price to a new low of $2.76 in 2013.
In describing the current state of the company, Wainscott said AK Steel is well-positioned for the future.
“Although our balance sheet took a hit, we have weathered one of the most difficult storms ever faced by our economy or the steel industry. Unlike others who chose bailout or bankruptcy paths during tough economic times, we chose a more difficult path,” Wainscott said.
“To become a viable company we had to make some very tough decision over the years, but they were the right decisions,” he said.
“Today, AK Steel is a high value-added, niche-oriented carbon, stainless and electrical steel manufacturer. We are highly regarded for producing some of the finest grades of flat-rolled steel available anywhere in the world, delivering them on-time, and for providing world-class customer service,” he continued.
“That said, our costs are higher than they should be. We have not had the benefit of higher production and sales volumes in recent years, and the cost of steelmaking inputs such as scrap, coal, coke and iron ore has been escalating and extremely volatile.”
To hedge against the up and down prices of raw materials, AK Steel bought interests in 2011 in iron ore concentrate and coal companies. The goal is to become 50 percent self-sufficient for the raw materials it uses.
AK Steel formed a joint venture with Minnesota company Magnetation Inc. to produce iron ore concentrate. The joint venture, Magnetation LLC, started construction this year on a plant in Indiana to make pellets from the concentrate.
Once the pellet plant is fully up and running by 2015, Magnetation LLC expects to produce 3 million tons of pellets a year for AK Steel’s use and for sale to outside companies.
Barring any major economic or production disruptions next year, AK Steel is poised to be in a more profitable situation come 2015, said Phil Gibbs, senior metals equity research analyst at KeyBanc Capital Markets, in an October interview.
“In the very short term, they have very high mandatory cash obligations — pension obligations of more than $200 million, health care contributions of about $75 million. Another about $100 million to spend on Magnetation,” Gibbs said. “They’re going to be cash flow constrained for the next call it 18 months to 24 months.”
“They’re in a challenging free cash flow situation, but to the extent they can weather the storm the next year and a half or so, they can make it out,” Gibbs said.
“I think what could help the company is just basically a strong domestic steel market, which is probably more a function of (Gross Domestic Product) and a stronger housing market,” Gibbs added.
Analysts with Goldman Sachs in November upgraded their outlook on the steel sector from cautious to neutral. Strong automotive and energy demand, and recovering commercial construction activity bodes well for steel producers, according to the market report by Goldman Sachs analysts Sal Tharani and Chelsea Bolton.
In upgrading their view on the steel business, Goldman Sachs also upgraded its outlook on AK Steel stock to buy from sell.
“Beginning in 2015, a number of positive events should markedly improve AKS earnings” including the start-up of its Magnetation pellet plant, which should reduce supply costs; the beginning of new iron ore contracts at a better price; and gradual recovery in the housing market, which should benefit the electric steel segment; Goldman’s analysis reads.
The biggest challenges AK Steel faces are out of its control: a “disappointing” pace of economic recovery, unfair trade practices, and overproduction of steel worldwide, Wainscott says.
Commenting that manufacturing is the backbone of the American economy, Wainscott said the company has emerged from the roller coaster ride of the last 10 years a stronger company.
“Eventually we will enjoy the tailwinds associated with improving markets at home and abroad,” Wainscott said. “In the meantime, we must continue to persevere to ensure that we are here when the better days arrive.”
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