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Allegheny, NLMK USA Extend Carbon Steel Hot-Rolling Deal

Zacks Equity Research

Allegheny Technologies Incorporated ATI has inked a one-year agreement for extending and expanding carbon steel hot-rolling conversion services for NLMK USA at its Hot-Rolling and Processing Facility (HRPF) in Brackenridge, PA.

Per the company, the continuation of the collaboration is vital to achieve better and sustainable profitability in its Flat Rolled Products (FRP) unit. The contract extension positions the company closer to its long-standing goal of boosting HRPF capacity utilization in a capital-efficient manner.

Allegheny envisions 2020 volumes covered under the deal to increase significantly compared with 2019 levels. The deal includes considerable guaranteed volumes along with fixed fee-per-ton revenues. The agreement also provides NLMK USA with uninterrupted access to the HRPF capabilities for converting its wide array of carbon steel grades through December 2020.

Notably, Allegheny’s HRPF is one of the most powerful hot-rolling mills in the world. It enables production of materials to maintain durability at high temperatures.

Shares of Allegheny have lost 16% in the past year compared with the industry’s 0.5% decline.

Allegheny, in its third-quarter call, stated that it expects consistent profitability in its FRP segment in the fourth quarter of 2019 on sustained strength in high-value products, which includes both the U.S. and its STAL joint venture. Also, the favorable impact of higher nickel prices on raw material surcharge values is expected to drive the segment’s performance.

For the High Performance Materials & Components (HPMC) unit, the company expects backlogs for single-aisle platforms to remain strong. However, it expects uneven order patterns along with inventory management actions by customers to negatively impact shipments in the fourth quarter. This is likely to partly offset the benefit from Allegheny’s larger share of high-value commercial jet engine materials and components.

Zacks Rank & Stocks to Consider

Allegheny currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Kirkland Lake Gold Ltd KL, Franco-Nevada Corporation FNV and Agnico Eagle Mines Limited AEM, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kirkland Lake Gold has an expected earnings growth rate of 96.3% for the current year. The company’s shares have surged 152.2% in the past year.

Franco-Nevada has projected earnings growth rate of 44.4% for 2019. The company’s shares have rallied 50.9% in a year.

Agnico Eagle has an estimated earnings growth rate of 168.6% for the current year. Its shares have moved up 69.1% in the past year.

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