Last week, AK Steel garnered attention when its stock dropped right after the company made a multi-million dollar deal with two other companies, Magnetation Inc., and Solar Fuel Company, Inc.
AK Steel has been in business in Butler County for over a century and according to Alan McCoy, the vice president of government and public relations at AK Steel, the steel company is one of the largest in the United States with its research factory and plant located in Middletown, along with headquarters in West Chester. Between these three facilities, AK Steel greatly impacts a large amount of Butler County by employing 2,500 people throughout the area.
The primary raw materials used by AK Steel in its steel production are iron ore and coal, more specifically metallurgical coal, which is a primary fuel and chemical reducing agent used in furnaces where iron ore is transformed into molten iron, according to McCoy. Before last week, AK Steel owned no iron ore or coal — it relied on sellers from around the world to provide them with the raw materials.
“We purchased somewhere between an average of $1 billion to $1.5 billion per year on these materials,” McCoy said.
By subjecting themselves to the prices on the international market, AK Steel has spent an increasing amount of money on raw materials due to higher demand for the prices in recent years, according to McCoy.
“Prices for iron ore and coal have dramatically risen in the last few years because of China’s steel industry growth,” McCoy said.
According to McCoy, China has seen its steel industry grow sevenfold in five years. Because China has so little iron ore and coal, they have to buy on the international market and this has increased demand and prices for these products.
McCoy said AK Steel has been looking to acquire some percentage of the raw materials that it needs in order to produce the steel so that they can better control the cost of what it spends. This is why the company recently announced its multi-million dollar joint venture deal with Magnetation, Inc., a company in Minnesota that makes iron ore. McCoy said AK Steel also made a different transaction with Solar Fuel Company, Inc, based in Pennsylvania. This deal allowed the company to acquire rights to 20 million tons of metallurgical coal.
Although AK Steel made strides to improve the company for the future by investing in its own raw materials, stocks for the company recently plummeted. While this is not good news for the company, McCoy does not seem too worried.
“Looking at the stock market in general, the whole industry has been under a lot of pressure … but stock prices are not something that the company can control,” McCoy said. “All the company can do is manage business and serve customers to the best of their ability and hope that the new deals are all reflected in the value of the company.”
Steve Wyatt, chair of Miami’s finance department, agrees that the company has no control over the unfortunate drop in their stocks.
Wyatt said via email, “I don’t speculate as to why a particular stock drops, but in general, stock prices of basic materials are very sensitive to anticipated slow-downs in the economy.”