Analyst Prefers Steel Dynamics Inc. As Prices Stabilize

AK Steel Holding Corp.

stands to loose out as a high-cost operator when steel prices begin stabilizing, an analyst said Friday. AK issued a profit warning Thursday, joining Steel Dynamics Inc.

and Nucor Corp.

which made similar announcements this week. Each blamed falling steel prices caused by an influx of cheap imports from China, but Wells Fargo's Sam Dubinsky said prices have hit bottom. Dubinsky rates all three steel makers at Market Perform, but said Nucor and Steel Dynamics will see wider profit margins starting in the second half of 2015. Citing its valuation, Dubinsky called Steel Dynamics "a better value for investors" who want to time the firming up of fundamentals in the steel industry, relative to Nucor. Although prices may be on the cusp of stabilization, Dubinsky doesn't see them rising substantially. "That's problematic for high-cost producers," Dubinsky said. AK Steel "doesn't have many levers to generate profits outside of a price recovery." Lower costs for iron ore, scrap, and coal "should help modestly, but not enough in our view" for AK's turnaround, Dubinsky said. Steel imports should subside in coming months as prices for domestically made product have fallen to competitive levels, Dubinsky said. A number of U.S. steel makers have recently spoken of "unfair" trade practices by China, and a complaint to the International Trade Commission may be in the offing.