US-based AK Steel showed mark-to-market gains of $4 million in the third quarter from its use of iron ore derivatives, the steelmaker -- which posted a Q3 net loss of $5.8 million -- said Tuesday.
"In the third quarter of 2017, the fair value of the company's iron ore derivatives increased due to an increase in the market price of iron ore from June 2017, which resulted in the company recognizing mark-to-market gains of $4 million in its third-quarter results," AK Steel reported in Tuesday's 8-K filing to the US Securities and Exchange Commission.
The company noted it has net mark-to-market gains of $11.9 million from iron ore derivatives for the first nine months of 2017.
"Not included in the financial results for Q3 and first nine months of 2017 were $9.3 million and $29.6 million of realized gains from iron ore derivative contracts that settled during these periods, as those gains were recognized in prior periods as a result of the change in hedge accounting treatment," AK Steel, headquartered in Middletown, Ohio, said.
The company said in a statement that it "routinely uses iron ore derivatives to reduce the volatility in the cost of its iron ore purchases."
Historically, these derivatives qualified for hedge accounting -- meaning that gains and losses on derivatives were reflected in the company's financial results in the same period that the hedged iron ore purchases affected earnings. Beginning in Q3 2016, however, the company's iron ore derivatives no longer qualified for hedge accounting treatment. Adjustments to mark these derivatives to fair value each period are recognized immediately in the company's financial results, instead of being recognized in the period that iron ore purchases affect earnings.
SALES UP, BUT SHIPMENTS DOWN IN Q3
Overall, the integrated steel producer reported a net loss of $5.8 million in Q3, compared with a profit of $50.9 million for the same period a year ago. The latest quarter, however, included $4.7 million of costs related to the acquisition of Precision Partners -- a strategic move downstream into automotive stamping -- and $8.4 million of costs related to refinancing long-term debt.
Net sales increased 3% to $1.49 billion for Q3 from $1.45 billion for Q3 2016. Flat-rolled steel shipments declined 2% to 1,368,600 st in Q3 from 1,397,900 st in Q3 2016, "primarily as a result of softer automotive market demand," AK Steel said.
The company noted that "higher raw material costs, particularly for scrap, chrome, zinc and other alloys," contributed to the decline in results compared with the same period a year ago.
