Steel Sector May Post Higher Costs, Flat Prices In Q2

After the market close on Thursday, AK Steel AKS announced its 2014 second quarter financial guidance. By the looks of it, the steel sector may have suffered from margin pressure during the quarter.

In the release, AK Steel noted that, due to harsh weather conditions in the first quarter that caused delayed shipments of Canadian iron ore, production was slowed to match supply. In addition to the reduced ore supply, AK was subject to higher transportation costs to the tune of ~$15 million or $0.11 pre-tax diluted EPS.

In support of the claim that the sector is facing pressure in the second quarter, Nucor NUE has just released its own guidance for the second quarter at the low end of its previously issued expectations. The company stated, "Import levels continue to negatively impact pricing and margins, particularly at our bar and sheet mills," adding, "Steel demand continues to be strong, particularly for sheet and plate products."

Following the release of their respective guidance, shares of AK and Nucor are both down ~1.95 percent in Friday's session.

Highlights from both AK and Nucor's guidance are listed below.

AK Steel

• Net loss of $0.19 to $0.23 per diluted common share; adjusted net loss of $0.02 to $0.06 per diluted common share.
• Shipments of approximately 1,375,000 tons, an approximate nine percent increase from the prior quarter.
• Flat average selling price compared to prior quarter.
• Market-to-market loss on its derivatives of approximately $23 million, or pre-tax $0.17 per diluted share.

Nucor

• Second quarter results to be in the range of $0.35 to $0.40 per diluted share.
• Included in the projected second quarter of 2014 results is approximately $21 million ($0.04 per diluted share) of additional employee stock-based compensation expense.
• Projected second quarter of 2014 results include no charge to value inventories using the last-in, first-out (LIFO) method of accounting.
• Performance of raw materials segment includes an anticipated operating loss of $30 million ($0.06 per diluted share) at new direct reduced iron plant in St. James Parish, Louisiana.