Stressed Out: AK Steel Leads Surging of U.S. Steelmakers

 | Mar 09, 2016 | 2:40 PM EST
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This article is part of a Real Money series on 20 companies investors should consider adding to their distressed watch list.

Shares of U.S. steelmakers are surging this year, and it appears the best performer in the group is West Chester, Ohio-based AK Steel (AKS).

The manufacturer -- which is a member of Real Money's "Stressed Out" watch list -- has been a leading U.S. steel producer for more than a century, but has been trapped in a steep slump over the past several years.

But a recent share spike may signal that things are beginning to turn around. 

Shares of AK Steel are down roughly 10% over the past 12 months, but are up 65% so far in 2016, leading fellow "Stressed Out" members U.S. Steel (X), which is up 58%, and TimkenSteel (TMST), whose shares are trading flatly on the year. Meanwhile Nucor (NUE), the nation's largest steel producer, is up 8%.

What's driving the enormous strides is a recovery in commodity and oil prices, allowing many manufacturers to fire up their idled mills as vanishing oil and gas customers reappear and revenues will likely rise on the rising tide of metal prices.

And the most recent development boosting AK Steel and its peers is the Department of Commerce's announcement last week that it would impose a 266% tariff on Chinese imports, whose prices many steelmakers argue have been stifling U.S. manufacturing.

The DealNewLead Holdings faces perfect storm

Imports of cold rolled steel are trading up more than 10% in 2016,at roughly $475 per short ton Tuesday, according to Bloomberg pricing data. Meanwhile crude prices are up 38% from mid-February troughs, based on U.S. benchmark West Texas Intermediate.

AK Steel CEO Roger Newport recognized on the company's January earnings call with analysts that the company would need to overcome Chinese oversupply and cheap imports.

"It is quite apparent that the steel industry continues to face significant challenges as we enter 2016," he said. "These challenges include continued pressures in the global steel industry as a result of the massive oversupply of steel, primarily from China; the direct and indirect impacts of this oversupply in all regions of the world; and -- although AK Steel is not a major player in the oil country tubular goods business -- the significant downturn in that market is contributing to the excess capacity in those markets in which we do compete and to the overall steel market."

For more on Real Money's 20 distressed companies to watch:

Stressed Out: Introducing Real Money's Distressed Index

Stressed Out: Sprint Is Collapsing Under the Weight of Its High-Yield Debt

Stressed Out: 3-D Printing and Semiconductors Are Getting Slammed

Stressed Out: Why the Big Steelmakers Are Tanking Today

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