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In The Spirit Of Halloween

31 October 2017 by lberuti

With U.S. steel prices having recovered about 70% from the lows reached in late 2015, investors were not really prepared for disappointing AKS’s ( AK Steel Corporation ) earnings when it reported in the morning. With hot-rolled coil steel trading at an attractive $600 per unit and Section 232 threats diminishing import competition, the company grew sales 3% year over year, but it lost money (3cts per share) nevertheless. Indeed, rising commodity prices also have a drawback, they make input more expensive. According to AKS, “higher raw-material costs, particularly for scraps, chrome, zinc and other alloys, contributed to the decline in results compared to the third quarter a year ago.” Investors were also spooked by the prospects of weakening demand in the fourth quarter, an issue that cannot be fixed by federally imposed tariffs. Both the stock (down 21%) and the 5-year risk premium (up 80bps at 460bps) of AKS got punished. With X ( United States Steel Corporation ) reporting tonight, we should know soon enough whether a second weak spot (after the retailers) is appearing in CDX HY. Scary prospects for Halloween...