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AK Steel Holding Corporation Message Board

  • jrpalladin jrpalladin Jul 21, 2000 10:24 AM Flag

    I've been told that AKS does not

    consider imports to threaten their position in
    the automotive sector.

    Steel used by the
    automotive manufacturers ships from AKS today and is used by
    the automotive manufacturers
    tomorrow.

    Additionally, they are extremely picky about the quality of the
    steel. It's got to be perfect.

    Given this, how
    can foreign manufactuers compete in the automotive
    sector? First, it costs about 20% for freight to import
    steel to the US. Second, you have to warehouse the
    imported steel and keep a several weeks supply on
    hand.
    Third, you have to load the steel a second time and ship
    it to the manufacturer on the delivery date. Fourth,
    if you have an quality imperfections, your are
    screwed.

    So given all of this, why would a foreign
    manufacturer want to mess around with just in time inventory
    given all of the other costs which could easily add up
    to 40% of his production cost?

    Do we have any
    knowledgeable people who can comment on this subject?

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • AKS is dead wrong to think imports won't affect
      them, and the freight cost is much less than 20%, it's
      more like $25. per MT for most imported steels.
      Furthermore, the importers are dying to get into US automotive
      Biz, and they can produce steels that are as good as
      AK, and don't mind suffering low prices to get in.
      Once they're in, they know how to gradually get more.

    • that is a very reasonable analysis...but, if
      foreign steel drives down prices, it still affects the
      whole market.

      GM wants is suppliers to make
      just enough profit to stay in business and maintain
      quality, they won't drive AK to no profits, but they will
      force AK to be as efficient as possible.

      • 1 Reply to golfNvester
      • slabs annually. If prices dropped on slabs, AKS
        margins on the automotive business increases since they
        are fixed priced. Remember, this is exactly what
        happened in reverse which drove AKS stock price down to
        the current level in January of 2000.

        It
        appears that AKS is expanding their product mix of high
        margin products so they are not held captive by the
        automotive industry. The long term solution is to increase
        their sales by several folds so they will have some
        leverage over the automotive suppliers. Look at Alcoa for
        example. Over the years, they have made some important
        acquisitions which have increased their pricing power
        significantly because of their size. AKS needs to do the same
        thing but stay away from the big losers like BS, LTV,
        NS. They have no competitive advantages, burn
        unmerciful amounts of cash each year and justify their
        actions by saying "wait till next year".

    • products are not automotive. But that doesn't
      mean AKS or the other automotive steel producers are
      immune from import damage. If we import a lot of
      non-automotive grade flat products, as we have in the past, the
      comptetion for the automotive grade business will increase
      as overall demand drops. X, BS and other automotive
      suppliers will need to cover the shortfall in construction
      grade products. So, the impact on AKS could be
      indirect, and not as severe as others will feel, but it
      will be felt.

      • 2 Replies to mdallensr
      • You are absolutely right: No matter to what
        market sector imported steel goes, it will affect
        automotive. The other domestic mills supplying those other
        markets will shift some of their tons to automotive,
        creating a pinch. You must consider the overall flatrolled
        steel market. All sectors vie for available tons.

      • shows that while imports increased and the other
        integrated steels' operating capacities dropped
        dramatically, AKS increased its automotive business
        significantly.

        This is a complicated subject. It probably has a lot
        to due with production constraints at the various
        steel manufacturers and other issues such as quality,
        financial stability of the Company etc. I agree that AKS is
        not totally immune from import damage but I don't
        think that they are real vulnerable in this
        area.

        The financial condition of BS and LTV stinks and they
        can't continue to drop hundreds of millions of dollars
        of cash annually keeping their business afloat until
        the "good times come back". They're gone forever.

 
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