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?
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.
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.
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.