Under new CEO, AK Steel enters 2016 with tough industry challenges


HERE’S WHAT’S HAPPENING AT AK STEEL

NEW LEADERSHIP. After the retirement at year-end of James Wainscott as president and chief executive officer, AK Steel is starting 2016 with a new CEO — Roger Newport — and a new President — Kirk Reich. Wainscott continues in the role of chairman. The new management team is acting urgently to return the company to sustainable profitability, says new Chief Financial Officer Jaime Vasquez.

NEW STRATEGY. A new strategy is being rolled out that cuts back on sales and production for the spot market for carbon steels and instead, focuses on production of value-added, differentiated steel products that fetch higher sales prices, according to the company.

PRODUCTION MOVES. Pressured by lower steel prices which AK Steel attributes to unfairly priced steel imports, the steelmaker idled one of its three blast furnaces in December in Ashland, Ky. Saying that the two remaining blast furnaces will be tested this year in Middletown and Dearborn, Mich., CEO Roger Newport implied some of those orders from Kentucky will be shifted to these other steel plants.

THREE WAYS THIS MATTERS TO YOU

1. TOP EMPLOYER: AK Steel is the City of Middletown's largest employer, but it's also the third largest employer overall in Butler County behind Miami University and Cincinnati Financial Corp.

Approximately 2,400 people work full-time at the West Chester Twp. headquarters office, steel plant Middletown Works and the Middletown research center.

Therefore, the fortunes of the local economy are closely tied to the company’s success.

2. MAJOR STOCK: AK Steel's Fortune 500 status makes it one of the largest publicly-traded companies in the Cincinnati-Dayton region where not only is its stock widely held, but it also contributes to the region's out-of-state name recognition.

3. LOCAL ECONOMY: AK Steel's history in Middletown dates back over 100 years and not only does the steelmaker employ thousands in Butler County on its payroll, it depends on more suppliers and contractors from throughout the region to run its business.

“People feel their pain as well… when times are hard,” Rick Pearce, president and chief executive officer of The Chamber of Commerce Serving Middletown, Monroe and Trenton, previously said. “They kind of set the business tone.”

One of the region’s largest manufacturers is starting the new year with a new strategy for navigating challenges facing the world steel industry such as too much supply, according to industry leaders.

Competition with imports from foreign steelmakers hurt sales prices of AK Steel's products last year, leading in part to a wider financial loss for 2015 of about $510.7 million. The average selling price of AK Steel's carbon, electrical and stainless steel products dropped 11 percent last year from the year before, according to the company.

“The issue is not so much imports coming in. They have and always will be part of our market. It’s really what is the pricing of that material and are they being subsidized or are they selling at unfair levels?” Chief Executive Officer Roger Newport told investor analysts Tuesday when discussing the company’s most recent financial results. Newport became CEO in January.

Under new leadership in 2016, West Chester Twp.-based AK Steel is taking a different approach. AK Steel has reduced sales to the spot market. The Fortune 500 steel producer is shifting gears to focus on value-added products and markets that provide a “reasonable return,” Newport said.

AK Steel is the city of Middletown’s largest employer where it operates a steel plant, and Butler County’s third largest of about 2,400 local workers in total.

“All of our efforts are being focused in the area of margin enhancement. This starts with the top line: sales, what we sell and who we sell it to,” Newport said. “It also includes lowering costs, both the costs to produce our products as well as our overhead costs.”

AK Steel has already taken steps to increase production and sales of hard-to-make steels that command higher prices such as high strength and lightweight products to automakers, Newport said.

According to the company, about half of sales are to automotive customers.

Construction started last year on a new approximately $36 million Research and Innovation Center in Middletown for the development of new products. Meanwhile, Newport also said the company is upgrading a new processing line at its Butler Works steel plant in Pennsylvania to handle greater production of higher quality grades of electrical steels.

Additionally, plans are to start making this year a new type of coated and cold-rolled high strength steel after completing modifications to a galvanizing line at Dearborn Works in Michigan, Newport said.

The idling in December of the Ashland, Ky., steel mill blast furnace also has implications for Middletown Works.

“With the recent idling of our Ashland hot end, we will be putting both the Dearborn and Middletown Works to the test in 2016 and I am confident that the entire AK Steel workforce will deliver,” he said.

Former AK Steel President and CEO James Wainscott first warned about plans to redouble cost-cutting efforts and to rethink the business strategy in October, the same day he announced plans to retire. Wainscott is still chairman.

Tuesday’s update was an opportunity to hear more details.

“Positioning AK Steel to deliver more value added products and services while minimizing under-performing assets and low margin products will take time,” said Jaime Vasquez, who was promoted to chief financial officer to fill the role previously held by Newport. “We will continue to discuss our progress and let me assure you, this team is acting with a keen sense of urgency in returning the company to sustainable profitability.”

Falling demand abroad is leading foreign competitors to sell their excess steel goods in the U.S., said Thomas Gibson, president and CEO of the industry group American Iron and Steel Institute. These products are sold sometimes at what AK Steel leaders call says is unfairly traded and subsidized prices.

“With the rising tide of cheap imports entering the U.S. market and capacity utilization at domestic mills lingering in the low (70 percent range) …this is a crisis for us,” Gibson said Jan. 20 during a monthly update for reporters on industry topics.

Government and business representatives from the U.S. and China have tentatively agreed to hold bilateral talks soon about the state of the steel industry in Washington, D.C., Gibson said.

“It’s a chance to exchange views and hopefully we’re going to hear what the Chinese plans are for restructuring and reducing the excess capacity,” Gibson said.

About the Author