In the face of increasing foreign competition for steel products, AK Steel is in cost-cutting mode and is on track to reduce expenses by a total $60 million by the end of the year, President, Chief Executive Officer and Chairman James Wainscott said Tuesday.
But the Butler County steelmaker can do more, Wainscott told investor analysts while discussing the company's most recent quarterly results.
Credit: otiscmgo
Credit: otiscmgo
“We will redouble our cost reduction efforts in 2016,” Wainscott said.
“Given current market conditions, it is essential that we reduce costs further. The low-hanging fruit has been picked, so these cost reductions are painful ones but they are absolutely necessary,” he said.
West Chester Twp.-based AK Steel Holding Corp. makes carbon, stainless and electrical steel products. AK Steel employs approximately 2,400 full-time workers in Butler County between headquarter operations and the Middletown Works steel plant, the company’s largest steel plant.
Even though the company sold a record amount of steel to automaker customers during the July through September quarter, other parts of the business have suffered from more foreign steel competitors entering the U.S. market. That includes what the company believes are unfairly traded imports sold in the U.S. at less than fair market value.
AK Steel attributes the effect of imports to a declining average selling price per steel ton. The average price of steel sold dropped to $912 last quarter, down 2 percent from the April to June quarter and down 16 percent from a year ago, according to AK Steel.
“In addition to staying true to our values of safety, quality and productivity, we are especially focused these days on lowering our costs — our operating costs, our steelmaking input costs, and our overhead costs — and we are very focused on enhancing our cash flow and liquidity,” Wainscott said.
“In an environment of this type, every plant and every department has to justify every expenditure,” he said.
Auto sales, cost-cutting efforts and savings from the integration of the company’s newest steel plant Dearborn Works in Michigan contributed to a surprise quarterly profit of $6.7 million reported Tuesday; however, year-to-date, AK Steel’s net loss amounts to $363 million.
In an example of the type of painful cuts being made, plans were announced earlier this month to temporarily idle the blast furnace at AK Steel's Ashland Works steel plant in Kentucky. Some operations will continue running. Ashland Works employs a total of about 940 workers, but the number of jobs to be affected at Ashland has not yet been determined, according to the company.
AK Steel has joined other domestic steel producers this year to file three international trade complaints but the cases are taking too long to complete, forcing AK Steel to act on layoffs and other measures, Wainscott said.
“The WARN notice recently issued to our Ashland Works employees is intended to be temporary in nature,” Wainscott said. “But, the future of Ashland Works, as well as the future of our other facilities, depends in great measure on our ability to increase our production volumes, shipment volumes, and the selling prices of our value-added products.”
Not only is the company analyzing costs, it's also in the process of rethinking its business strategy, Wainscott revealed on the same day it was announced he intends to retire as president and CEO in January. He will continue to act as chairman. Company leaders are reviewing what businesses it should be in, what products it should make and where it should make and sell them, and how to optimize the company for the future.
“We will reconfigure the business accordingly and we will do everything we can to cut costs. Ultimately, however, we need a recovery on the top-line in order to significantly improve the bottom-line,” he said.
The unions representing hourly workers of each of AK Steel’s eight steel plants are banding together to put pressure on members of Congress and other legislators to defend the American steel market, said Neil Douglas, president of International Association of Machinists and Aerospace Workers Local 1943 in Middletown. The unions invited the company to join them.
Local 1943 represents about 1,700 hourly workers mostly at AK Steel, but also Pilot Chemical, Bowling Transportation and Cummins Bridgeway.
“We’re still hiring and we definitely feel for our brothers and sisters down in Ashland,” Douglas said. “We don’t like it.”
“I do know these cost-cutting measures are absolutely coming down. It is not necessarily affecting day-to-day yet,” he said. “We’ll have to see.”
Altogether, AK Steel operates eight steel plants. Presently, facilities in Ohio, Kentucky, Indiana, Pennsylvania, Michigan and West Virginia employ more than 8,000 altogether and produce flat-rolled carbon, electrical and stainless steels used by the automotive, appliance, construction and manufacturing markets.
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