AK Steel Holding Corporation (NYSE: AKS)
The year 2016 was off to a great start for AK Steel. However, more recently, the stock, like many in its sector, has taken a turn for the worst. So, what’s causing the declines? What’s going on in the market today? And what can we expect to see from AKS stock moving forward? Today, I’ll do my best to answer these questions.
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What Is Causing The Declines In AKS?
To understand what’s causing AK Steel to fall, it’s important that you understand why it had a strong start in 2016. While global economic conditions were a primary cause for concern, China, the world’s largest consumer of steel, was buying the metal like it was going out of style. As this happened, others started to join in the fray, leading to massive gains in the demand for steel, and, ultimately, the value of the metal. Because AKS makes the majority of its money from the metal, this was a great thing for the stock.
However, more recently, things have started to change. In fact, because of China’s excessive buying of steel in the beginning of the year, the term supply glut is starting to be thrown around. Essentially, many believe that China currently has an oversupply of steel. As a result, we won’t see much buying out of the region in the near future, and that’s going to weigh heavy on demand. This is the first push of resistance currently on AKS.
Another major factor here is supply. With lower demand out of China, we’re expecting to see demand-based headwinds. Unfortunately, supply isn’t looking much better. At the moment, steel companies seem to be increasing production at an alarming rate. As the law of supply and demand tells us, if demand is down and supplies are up, prices are likely to fall. So, increasing production is also helping steel to fall lower, putting further pressure on AK Steel.
What We’re Seeing In The Market Today
While AKS has had a rough time in the market as of late, today is proving to be a strong day. It seems as though investors are looking for the light at the end of the tunnel, doing what they can to push the stock upward. Currently (2:13), the stock is trading at $4.27 per share after a gain of $0.16 per share (3.89%).
What We Can Expect To See Moving Forward
Moving forward, I have a relatively mixed opinion of what we can expect to see from AKS. In the short term (through the rest of the year and the beginning of next), I’m expecting to see a continuation of volatility in the market as the steel industry as a whole feels the pain. However, in the long run, the picture isn’t quite so grim.
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At the end of the day, steel is one of the most in-demand assets in the world, and for good reason. The metal is used in everything from cars to homes and bridges. Heck, even some coffee cups have the metal in them. At the moment, supply and demand are unbalanced, and that’s going to lead to some issues. However, AK Steel is a massive company, and they have the ability to weather the storm. At the end of the day, the imbalance won’t last forever, and AKS is likely to find itself on top at the end of it. While now isn’t likely the best time to jump in, I’m expecting to see incredible gains in the long run.
[Image Courtesy of Wikimedia]