AK Steel Tackles Rising Raw Materials Prices

Oct. 6, 2011
Joint venture and acquisition aimed at helping the company hedge against future price increases.

AK Steel's recent moves to become more vertically integrated by securing raw material supplies should help the company more effectively manage rising input costs, says Alan McCoy, vice president and company spokesman.

The West Chester, Ohio, steel producer announced Oct. 4 it had formed a joint venture with Magnetation Inc. to produce iron ore concentrate. AK Steel also said it purchased Solar Fuel Company Inc., which controls an estimated 20 million short tons of low-volatile met coal.

China's rising demand for raw materials used in steelmaking has contributed to dramatic increases in iron ore prices.

The joint venture, called Magnetation LLC, is expected to satisfy about 50% of AK Steel's current iron ore pellet requirements by 2016, the company says.

AK Steel does not plan to become a fully integrated steel producer but is seeking a balance that would provide the company with a more stable pricing situation, McCoy says.

"Our predecessor company owned raw materials to some degree and owned too much of it," McCoy says. "Conversely, AK Steel prior to this has owned none, and that's not a good place to be either. So over time we don't want to be totally integrated or not integrated at all."

AK Steel owns 49.9% of the joint venture, which produces approximately 441,000 short tons of iron ore concentrate annually from a plant near Keewatin, Minn. The companies will construct a second plant near the existing facility with a targeted annual capacity of 1.1 million short tons when completed in 2016.

AK Steel said it will invest $297.5 million into the joint venture.

The company will pay $36 million for Solar Fuel, which AK Steel will rename AK Coal Resources.

The company will invest an additional $60 million between 2013 and 2015 in AK Coal Resources to develop its mining operations and begin coal production, AK Steel said.

About the Author

Jonathan Katz | Former Managing Editor

Former Managing Editor Jon Katz covered leadership and strategy, tackling subjects such as lean manufacturing leadership, strategy development and deployment, corporate culture, corporate social responsibility, and growth strategies. As well, he provided news and analysis of successful companies in the chemical and energy industries, including oil and gas, renewable and alternative.

Jon worked as an intern for IndustryWeek before serving as a reporter for The Morning Journal and then as an associate editor for Penton Media’s Supply Chain Technology News.

Jon received his bachelor’s degree in Journalism from Kent State University and is a die-hard Cleveland sports fan.

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